SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-28036
BROOKS FIBER PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
43-1656187
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(I.R.S. Employer Identification No.)
425 Woods Mill Road South, Suite 300, St. Louis, Missouri 63017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-878-1616
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Shares of Common Stock, par value $.01, outstanding at August 14, 1997:
38,039,633.
Exhibit Index is on page 26.
1
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BROOKS FIBER PROPERTIES, INC. AND SUBSIDIARIES
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three
Months and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended June 30, 1997 5
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 21
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 25
2
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Balance Sheets
<CAPTION>
June 30, 1997 December 31, 1996
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 232,682,000 $ 261,880,000
Marketable securities, at cost .............................................. 124,665,000 182,304,000
------------------ ------------------
357,347,000 444,184,000
Accounts receivable, net .................................................... 20,497,000 13,989,000
Other current assets ........................................................ 14,880,000 11,989,000
------------------ ------------------
Total current assets ............................................. 392,724,000 470,162,000
NETWORKS AND EQUIPMENT, at cost ................................................... 531,522,000 306,455,000
Less accumulated depreciation and amortization .............................. 32,742,000 16,114,000
------------------ ------------------
NETWORKS AND EQUIPMENT, net ....................................................... 498,780,000 290,341,000
INVESTMENT IN MINORITY-OWNED VENTURE .............................................. 74,009,000 20,000,000
OTHER ASSETS, net ................................................................. 209,129,000 99,078,000
------------------ ------------------
$ 1,174,642,000 $ 879,581,000
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 16,644,000 $ 6,511,000
Accrued liabilities ......................................................... 18,855,000 17,915,000
Other current liabilities ................................................... 763,000 10,511,000
------------------ ------------------
Total current liabilities ........................................ 36,262,000 34,937,000
------------------ ------------------
LONG-TERM DEBT, net of current portion ............................................ 781,517,000 552,810,000
MINORITY INTERESTS ................................................................ 3,431,000 --
COMMON STOCK, subject to redemption, $.01 par value,
2,016,000 shares issued and outstanding ..................................... 25,200,000 25,200,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 shares authorized,
35,996,147 and 29,066,139 shares issued and outstanding ................... 360,000 291,000
Additional paid-in capital .................................................. 447,028,000 323,850,000
Accumulated deficit ......................................................... (119,156,000) (57,507,000)
------------------ ------------------
Total shareholders' equity ....................................... 328,232,000 266,634,000
------------------ ------------------
$ 1,174,642,000 $ 879,581,000
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ................................................... $ 27,786,000 $ 8,409,000 $ 48,336,000 $ 15,204,000
Expenses:
Service costs ......................................... 15,801,000 3,592,000 26,804,000 6,459,000
Selling, general & administrative expenses ............ 20,633,000 8,725,000 36,486,000 15,346,000
Depreciation and amortization ......................... 12,287,000 3,166,000 21,023,000 5,594,000
------------ ------------ ------------ ------------
48,721,000 15,483,000 84,313,000 27,399,000
------------ ------------ ------------ ------------
Loss from operations ............................ (20,935,000) (7,074,000) (35,977,000) (12,195,000)
Other income (expense):
Interest income ....................................... 5,032,000 4,466,000 10,104,000 6,258,000
Interest expense ...................................... (18,244,000) (7,762,000) (32,948,000) (11,597,000)
------------ ------------ ------------ ------------
Loss before minority interest ................... (34,147,000) (10,370,000) (58,821,000) (17,534,000)
Minority interest in share of loss ......................... 21,000 615,000 29,000 1,138,000
------------ ------------ ------------ ------------
Net loss before extraordinary items ............. (34,126,000) (9,755,000) (58,792,000) (16,396,000)
Extraordinary loss on debt extinguishment .................. (2,857,000) -- (2,857,000) --
------------ ------------ ------------ ------------
Net loss after extraordinary items .............. $(36,983,000) $ (9,755,000) $(61,649,000) $(16,396,000)
============ ============ ============ ============
Pro forma loss per common and common
equivalent share before extraordinary item ............ $ (0.94) $ (0.40) $ (1.72) $ (0.75)
Pro forma net loss per common and common
equivalent share for extraordinary item ............... $ (0.08) -- $ (0.08) --
------------ ------------ ------------ ------------
Pro forma loss per common and common
equivalent share after extraordinary item ............. $ (1.02) $ (0.40) $ (1.80) $ (0.75)
============ ============ ============ ============
Pro forma weighted average number of
shares outstanding .................................... $ 36,209,026 $ 24,323,081 $ 34,190,023 $ 21,923,333
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<CAPTION>
Common Stock Total
---------------------------- Additional Accumulated Shareholders'
Shares Amount Paid-In Capital Deficit Equity
------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ....... 29,066,139 $ 291,000 $ 323,850,000 $ (57,507,000) $ 266,634,000
Issuance of common stock in
connection with secondary
offering, net ................ 1,008,514 10,000 23,211,000 -- 23,221,000
Issuance of common stock in
connection with acquisitions . 5,186,226 52,000 97,654,000 -- 97,706,000
Options exercised ................ 688,708 7,000 1,443,000 -- 1,450,000
Issuance of common stock in
connection with employee stock
purchase plan ................ 46,560 -- 870,000 -- 870,000
Net loss ......................... -- -- -- (61,649,000) (61,649,000)
------------- ------------- --------------- ------------- -------------
Balance, June 30, 1997 ........... 35,996,147 $ 360,000 $ 447,028,000 $(119,156,000) $ 328,232,000
============= ============= =============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended June 30
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss before extraordinary items .................................... $ (58,792,000) $ (16,396,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ...................................... 21,023,000 5,594,000
Non-cash interest expense .......................................... 30,217,000 11,484,000
Minority interests ................................................. (29,000) (1,138,000)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable ........................................... (5,651,000) (1,713,000)
Accounts payable and accrued expenses ......................... (4,904,000) (4,407,000)
Other, net .................................................... 71,000 (4,894,000)
------------- -------------
Net cash used in operating activities ..................... (18,065,000) (11,470,000)
------------- -------------
Cash flows from investing activities:
Purchase of networks and equipment ..................................... (168,736,000) (63,220,000)
Purchase of marketable securities ...................................... (86,574,000) (155,306,000)
Maturity of marketable securities ...................................... 144,213,000 4,993,000
Investment in minority-owned venture ................................... (54,009,000) --
Increase in other assets ............................................... (12,981,000) (5,372,000)
Payment for acquisitions, net of cash acquired ......................... (52,765,000) (3,715,000)
------------- -------------
Net cash used in investing activities ..................... (230,852,000) (222,620,000)
------------- -------------
Cash flows from financing activities:
Issuance of common stock, net .......................................... 25,541,000 185,284,000
Issuance of preferred stock and subscriptions
receivable payments, net ............................................. -- 1,106,000
Minority investment in subsidiary ...................................... 3,460,000 8,000,000
Proceeds from long-term debt, net ...................................... 241,822,000 239,281,000
Repayment of long-term debt and capital leases ......................... (50,207,000) (3,270,000)
Other financing activities ............................................. (897,000) --
------------- -------------
Net cash provided by financing activities ................. 219,719,000 430,401,000
------------- -------------
Net increase (decrease) in cash ........................... (29,198,000) 196,311,000
Cash, beginning of period ................................................... 261,880,000 59,913,000
------------- -------------
Cash, end of period ......................................................... $ 232,682,000 $ 256,224,000
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ............................... $ 2,500,000 $ 108,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
BROOKS FIBER PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated balance sheet of Brooks Fiber Properties, Inc. ("BFP"
or the "Company") at December 31, 1996 was obtained from the Company's
audited balance sheet as of that date. All other financial statements
contained herein are unaudited and, in the opinion of management,
contain all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation. Operating results for the
six months ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. The
Company's accounting policies and certain other disclosures are set
forth in the notes to the Company's audited consolidated financial
statements as of and for the year ended December 31, 1996.
2. CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash equivalents
consist primarily of cash on hand and highly liquid securities with
insignificant interest-rate risk and original maturities of three
months or less at date of acquisition.
3. MARKETABLE SECURITIES
Marketable securities consist of treasury bills and notes, commercial
paper, and repurchase agreements with maturities beyond three months
but less than twelve months. Marketable securities are stated at cost,
adjusted for discount accretion and premium amortization. The
securities in the Company's portfolio are classified as "held to
maturity" as management has the intent and ability to hold those
securities to maturity.
4. ACQUISITIONS AND JOINT VENTURES
Effective February 1, 1997, the Company acquired 100% of the stock of
certain companies related to Phoenix Fiberlink, Inc. (Phoenix), a
provider of competitive access and internet services in Utah and
Nevada. The purchase price was paid through the issuance by the Company
of an aggregate of 600,000 shares of common stock valued at current
market value and cash.
7
<PAGE>
Effective May 5, 1997, the Company acquired 100% of the stock of Metro
Access Networks, Inc. (MAN), a competitive local exchange carrier with
networks in operation or under construction in Dallas, Fort Worth,
Houston, San Antonio, Austin, Corpus Christi, and Waco, Texas. The
purchase price was paid through the issuance by the Company of an
aggregate of 4,586,226 shares of common stock valued at current market
value and cash payments of approximately $6.5 million. The following
unaudited condensed pro forma information presents the results of
operations of the Company for the six months ended June 30, 1997, as if
the MAN transaction had occurred on January 1, 1997:
Revenue........................... $49,566,000
Loss before minority interest..... ($63,739,000)
The above acquisitions were accounted for using the purchase method of
accounting and, accordingly, the results of operations of the acquired
companies have been included in the Company's consolidated financial
statements since the effective dates of acquisition. Intangible assets
of approximately $94.0 million were recorded as a result of these
acquisitions.
On February 25, 1997, the Company acquired a 60% interest in a company
formed by MaineCom Services (MaineCom), a subsidiary of Central Maine
Power Co., for the purposes of constructing, owning, operating and
developing networks initially in Portland, Maine and Nashua and
Manchester, New Hampshire, and other markets in Maine and New Hampshire
as may be agreed upon by the Company and MaineCom in the future. The
Company has contributed approximately $5.2 million for its 60%
interest; MaineCom's investment of approximately $3.5 million is
reflected as a minority interest investment, net of minority interests
and losses.
In May 1997, the Company made an additional $4.0 million convertible
preferred stock investment in Verio, Inc. (Verio), a privately-held
consolidator of ISPs. On June 25, 1997, the Company purchased $50.0
million in debt securities in Verio. The Verio debt securities mature
on June 15, 2004, and pay interest at the rate of 13-1/2% per annum
semi-annually in arrears commencing December 15, 1997. The debt
securities include detachable warrants, allowing the Company to
purchase common stock in Verio at an exercise price of one cent per
share. The investment in Verio is classified as Investment in
Minority-Owned Venture on the Company's consolidated balance sheet. At
June 30, 1997, the Company holds shares of Verio preferred stock which
are convertible into an aggregate of 4,664,971 shares of Verio common
stock and 400,000 warrants to purchase an additional 704,000 shares of
Verio common stock.
8
<PAGE>
5. NETWORKS AND EQUIPMENT
Networks and equipment consist of the following:
June 30, December 31,
1997 1996
------------ ------------
Telecommunications networks................. $291,611,000 $170,687,000
Electronic and related equipment............ 162,015,000 85,050,000
Office equipment and furniture.............. 35,057,000 22,625,000
Leasehold improvements and other equipment.. 22,844,000 14,456,000
Land and buildings.......................... 19,995,000 13,637,000
------------ ------------
531,522,000 306,455,000
Less accumulated depreciation............... 32,742,000 16,114,000
------------ ------------
$498,780,000 $290,341,000
============ ============
As of June 30, 1997 and December 31, 1996, networks and equipment
include $25,130,000 and $21,875,000, respectively, of networks in
progress that are not in service and, accordingly, have not been
depreciated. In addition, for the six months ended June 30, 1997, and
June 30, 1996, interest totaling $1,641,000 and $437,000, respectively,
has been capitalized in connection with the Company's network
construction projects.
6. OTHER ASSETS
Other assets consist of the following:
June 30, December 31,
1997 1996
------------ -------------
Goodwill................................... $160,769,000 $ 65,648,000
Debt issuance costs........................ 27,632,000 20,437,000
Organization, development, and
pre-operating costs.................... 22,163,000 13,756,000
Rights-of-way and other.................... 8,826,000 3,604,000
Interest rate cap arrangements............. 150,000 1,511,000
------------ -------------
219,540,000 104,956,000
Less accumulated amortization.............. 10,411,000 5,878,000
------------ -------------
$209,129,000 $ 99,078,000
============ =============
9
<PAGE>
In June 1997, interest rate cap arrangements of $1,361,000 were written
down to reflect market value of $150,000 in conjunction with the
prepayment of certain of the Company's long-term debt.
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS
On June 30, 1997, the Company prepaid $50.0 million in outstanding
secured indebtedness with AT&T Credit Corporation. In conjunction with
this prepayment, an extraordinary loss of approximately $2.9 million
was charged to operations, including write-downs of debt issuance costs
and interest rate cap arrangements, and applicable prepayment
penalties.
On May 29, 1997, the Company issued $250 million of 10.0% Senior Notes
due June 1, 2007. Interest on the 10.0% Senior Notes is payable
semi-annually, commencing December 1, 1997. On or after June 1, 2002,
the Senior Notes will be redeemable at the option of the Company, in
whole or in part from time to time at the following prices (expressed
in percentages of the principal amount at the stated maturity), if
redeemed during the 12 months beginning June 1 of the years indicated
below, with interest accrued to the redemption date:
Year Redemption Price
--------------------------- ----------------
2002....................... 105.000%
2003....................... 103.333%
2004....................... 101.667%
2005 and thereafter........ 100.000%
In addition, under certain conditions related to a change in control of
the Company, the Company may be required to repurchase all or any part
of the Senior Notes as stipulated in the note agreement. The Senior
Notes are senior unsecured obligations of the Company.
On June 20, 1997, a financial institution committed to fully underwrite
a $250 million senior secured credit facility for the Company.
8. SHAREHOLDERS' EQUITY
On February 4, 1997, the Company completed a secondary offering of
6,723,429 shares of common stock at a price of $25.00 per share. All of
the 6,723,429 shares offered were sold by existing shareholders of the
Company, and the Company did not receive any proceeds from the sale of
these shares. In conjunction with the offering, the underwriters were
granted an over-allotment option by the Company to purchase additional
shares at $25.00 per share. This option was fully exercised by the
underwriters, and an additional 1,008,514 shares were issued by the
Company. Gross proceeds to the Company from this
10
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offering totaled approximately $25.2 million, and proceeds net of
underwriting discounts and expenses totaled approximately $23.2
million.
On April 29, 1997, upon receiving the required approval from the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders, the Company's Restated Certificate of Incorporation was
amended to, among other things, increase the authorized number of
shares of common stock from 50 million shares to 150 million shares.
9. STOCK OPTIONS AND WARRANTS
The Company's 1993 Stock Option Plan (the "1993 Plan") authorizes the
granting of options and stock appreciation rights covering up to
3,400,000 shares of common stock. On February 18, 1997, the
Compensation Committee of the Board of Directors adopted and approved
the Company's 1997 Stock Incentive Plan which authorizes the issuance
of an additional 3,000,000 shares of common stock; stockholders'
approval was subsequently obtained at the 1997 Annual Meeting of
Stockholders on April 29, 1997. Stock options are granted with an
exercise price equal to the stock's fair market value at the date of
grant and generally vest over a period of three years from the date of
grant.
Stock option activity for the Company's stock option plans for the six
months ended June 30, 1997 is as follows:
Number Price per Share
--------- ----------------
Balance, December 31, 1996................ 2,750,186 $ 4.00 - $33.75
Granted.......................... 1,199,016 $21.75 - $28.688
Exercised........................ (688,708) $ 4.00 - $12.50
Canceled......................... (280,596) $ 4.00 - $27.00
---------
Balance, June 30, 1997.................... 2,979,898 $ 4.00 - $33.75
=========
There was no stock warrant activity during the six months ended June
30, 1997. At June 30, 1997, outstanding warrants totaled 409,860 at
prices per share ranging from $11.35 to $31.04. On March 11, 1997, the
Board of Directors of the Company approved a one-year extension of the
expiration dates of stock warrants covering an aggregate of 345,600
shares of common stock which otherwise were scheduled to expire on
various dates from March 31, 1997, through May 31, 1997.
10. PRO FORMA LOSS PER SHARE
Pro forma loss per share has been computed using the number of shares
of common stock and common stock equivalents outstanding. The weighted
average number of shares used in computing pro forma loss per share was
36,209,026 and 34,190,023 for the three
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and six month periods ended June 30, 1997, respectively, and 24,323,081
and 21,923,333 for the three and six month periods ended June 30, 1996,
respectively. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, shares issued and stock options and
warrants granted at prices below the initial public offering price of
$27.00 per share during the twelve-month period preceding the date of
the Company's initial filing of the Registration Statement related to
such initial public offering (May 2, 1996) have been included in the
calculation of common stock equivalent shares for the six months ended
June 30, 1996, using the treasury stock method, as if they were
outstanding for the entire six-month period. For the six months ended
June 30, 1997, the weighted average number of shares was based on
common stock outstanding and does not include common stock equivalents
as their inclusion would be anti-dilutive.
11. COMMITMENTS AND CONTINGENCIES
During September 1995, GST Tucson Lightwave, Inc. ("Lightwave") was
permitted to intervene in litigation originally filed by Brooks Fiber
Communications of Tucson, Inc., a wholly-owned subsidiary of BFP ("BFC
Tucson"). Lightwave filed a counterclaim against BFC Tucson, BFP, and
Tucson Electric Power Company ("TEP") charging BFC Tucson, BFP, and TEP
with violations of antitrust laws, all of which stem from an agreement
between BFC Tucson and TEP that allowed BFC Tucson exclusive rights,
for one year, to utilize certain of TEP's rights-of-way. The original
causes of the action have been settled, however, the counterclaim by
Lightwave is currently still pending. The Company believes the claim to
be without merit and intends to vigorously defend against this action.
The Company believes that resolution of the matter will not have a
material adverse effect on the financial condition or results of
operations of the Company.
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's condensed Consolidated Financial Statements and Notes thereto
included herewith, and with the Company's Management's Discussion and Analysis
of Financial Condition and Results of Operations and audited consolidated
financial statements and notes thereto as of and for the
year ended December 31, 1996.
OVERVIEW
The Company is a leading facilities-based provider of competitive local
telecommunications services, commonly referred to as a competitive local
exchange carrier (CLEC), in selected markets within the United States. The
Company competes with incumbent local exchange carriers (ILECs) by providing
high quality, integrated local telecommunications services over fiber optic
digital networks to meet the voice, data and video transmission needs of its
customers. The Company's customers are principally inter-exchange carriers
(IXCs), internet service providers (ISPs), wireless carriers,
telecommunications-intensive business, government, and institutional end users,
and residential customers. The Company offers these customers technologically
advanced local telecommunications services as well as superior customer service,
flexible pricing and route diversity.
The Company's goal is to become the primary full-service provider of competitive
local telecommunications services to its customers in selected cities by
offering superior products with excellent customer service at prices below those
charged by the ILECs. The principal elements of the Company's strategy include
targeting selected U. S. markets with an emphasis on second-and third-tier
markets, aggressively pursuing switched services opportunities, further building
out existing systems and expanding service offerings. The Company provides these
services in an expanding number of U. S. markets. As of June 30, 1997, the
Company had networks in operation or under construction in a total of 44 U. S.
cities. The Company plans to expand its network operations to have systems in
operation or under construction in a total of 50 cities by the end of 1998. As
of June 30, 1997, the Company had a total of 22 digital telephone switches
installed serving a total of 26 of its operating networks. The Company plans to
leverage its networks and customer relationships by offering local dial tone,
switched access termination and origination services, centrex and desktop
products in all of its operating networks. The Company is also expanding its
capabilities to provide flexible enhanced services that compliment its
switch-based services. Such enhanced services include, among others, high speed
video transport, frame relay and ATM-based packet transport services, and
internet access products. The Company is currently offering such services in
certain markets and expects to offer such services in all of its currently
operating networks by the end of 1997.
In order to capitalize on the competitive dynamics of the changing IXC/ILEC
relationships, the Company has established close business alliances with major
IXCs, including preferred vendor
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relationships. In accordance with this strategy, the Company and MCI
Communications Corporation (MCI) have entered into agreements which provide
that, until September 30, 2001, the Company will be MCI's preferred provider of
certain local access services. During the quarter ended June 30, 1997, this
relationship was expanded to include 37 of the Company's 44 markets. Also during
February 1997, the Company and AT&T Communications, Inc. (AT&T Communications),
a wholly-owned subsidiary of AT&T Corp. (AT&T), announced the first national
agreement between AT&T and a CLEC, whereby AT&T will begin utilizing the
Company's networks to originate and terminate the calls of AT&T customers served
by the Company's networks. The agreement represents a further expansion of the
Company's relationship with AT&T and provides for origination and termination of
customer calls to be completed through the Company's networks nationwide, thus
bypassing the ILEC. The Company believes preferred vendor relationships with
IXCs provide opportunities to leverage its partners' sales channels and market
support to sell the Company's products and services and expand the Company's
potential revenue base. In addition, the Company believes that relationships
with IXCs facilitate its entry into new markets by providing access between the
IXCs and their customers.
In February 1997, the Company acquired 100% of the stock of certain companies
related to Phoenix Fiberlink, Inc. (Phoenix), a provider of competitive access
and internet services in Utah and Nevada.
Also in February 1997, the Company acquired a 60% interest in a company formed
by MaineCom Services (MaineCom), a wholly-owned subsidiary of Central Maine
Power Co., for the purposes of constructing, owning, operating and developing
networks initially in Portland, Maine and Nashua and Manchester, New Hampshire,
and other markets in Maine and New Hampshire as may be agreed upon by the
Company and MaineCom in the future.
In May 1997, the Company acquired 100% of the stock of Metro Access Networks,
Inc. (MAN), a CLEC with networks in operation or under construction in Dallas,
Fort Worth, Houston, San Antonio, Austin, Corpus Christi and Waco, Texas.
The development of the Company's businesses and the construction, acquisition
and expansion of its networks require significant expenditures, a substantial
portion of which is incurred before the realization of revenues. These
expenditures, together with the associated early operating expenses, result in
negative EBITDA until an adequate customer base may be established. However,
as this customer base grows, the Company expects incremental revenues can be
added within operating networks with minimal additional expense, providing
significant EBITDA contributions. The Company also incurs ongoing capital
expenditures with respect to both existing and new systems which are directly
related to the installation of new revenue-producing services.
14
<PAGE>
The following table provides selected statistical and financial data for the
Company as of the dates indicated:
As of June 30,
---------------------- Percentage
1997 1996 Increase
---------- ---------- -----------
Cities in operation ....................... 31 18 72%
Cities under construction ................. 13 8 63%
Buildings connected - on-net .............. 1,402 644 118%
Buildings connected - off-net ............. 2,007 65 NM
Route miles ............................... 2,084 705 196%
Fiber miles ............................... 171,928 43,152 298%
Switches installed ........................ 22 9 144%
CLEC lines in service ..................... 55,406 9,226 501%
VGE circuits .............................. 911,006 243,171 275%
Number of employees ....................... 1,348 571 136%
Total Assets
(dollars in thousands) .................... $1,174,642 $ 633,825 85%
========== ========== ==========
- ----------
NM - Not meaningful
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUE
The Company's revenues increased to $27.8 million for the three months ended
June 30, 1997 from $8.4 million for the three months ended June 30, 1996, an
increase of 230%. The increase in revenues reflects the impact of the Company's
acquisition and development activities, including an increase in the number of
networks in operation to 31 at June 30, 1997 from 18 at June 30, 1996, as well
as increased utilization of the Company's network facilities arising from the
sales of additional services to current and new customers. A significant
contributor to the overall revenue growth has been the continued growth of local
switched service revenues. Annualized local switched service revenues increased
to $33.5 million based on June 1997 revenues from $22.2 million based on March
1997 revenues. Local switched services revenues for the three months ended June
30, 1997, totaled $7.3 million as compared to $1.4 million for the three month
period ended June 30, 1996. The increase in switched service revenue reflects
continued growth in the Michigan markets, where the Company has the most
experience in providing switched service, as well as significant growth in
certain of the Company's other markets. This is evidenced by the fact that the
Company's installed CLEC lines in markets other than Grand Rapids have increased
to 59% of the total lines as compared to 44% at March 31, 1997. Total CLEC lines
in service increased 54% sequentially to 55,406 at June 30, 1997, from 36,075 at
March 31, 1997, and increased 501% from 9,226 at June 30, 1996.
15
<PAGE>
COSTS AND EXPENSES
Service costs increased to $15.8 million for the three months ended June 30,
1997 from $3.6 million for the three months ended June 30, 1996. The increase
was due primarily to the impact of the Company's acquisition and development
activities, including increasing costs associated with developing the Company's
rapidly growing local switched services business and the Company's expanding
long distance resale operations. Service costs primarily represent the portion
of total operating expenses paid to third parties for unbundled loop charges and
other local and long distance service costs, including right-of-way fees and
ILEC and IXC collocation costs. Also included are salaries and benefits
associated with the technical operations of the networks and other network
costs.
The Company's selling, general and administrative expenses (SG&A) for the three
months ended June 30, 1997 were $20.6 million, as compared with SG&A expenses of
$8.7 million for the three months ended June 30, 1996. The increase was
principally due to the increasing number and continued expansion of the
Company's networks, including added personnel costs and marketing activities
related to the introduction of switched services. There is typically a period of
higher SG&A expense and a lag time in the generation of revenues following the
acquisition and development of the Company's networks. Management expects SG&A
expenses to continue to increase during the remainder of 1997 as the Company
continues to expand its networks, services and marketing activities.
Depreciation and amortization expense increased to $12.3 million for the three
months ended June 30, 1997, from $3.2 million for the three months ended June
30, 1996, as a result of the Company's acquisitions and the continued expansion
of the Company's networks.
INTEREST INCOME (EXPENSE)
Interest expense totaling $18.2 million was recorded during the three months
ended June 30, 1997, as compared to interest expense of $7.8 million for the
three months ended June 30, 1996. The primary contributors to the substantial
increase in interest expense as compared to the comparable period in the prior
year is non-cash interest expense totaling $16.7 million attributable to
accretion of the Company's senior discount notes issued during 1996 and to
accrued interest related to the issuance of senior notes in May 1997. Interest
of $654,000 was capitalized for the quarter ended June 30, 1997, related to
network construction projects. For the quarters ended June 30, 1997 and 1996,
interest income totaling $5.0 million and $4.5 million, respectively, was
derived from the Company's available cash and cash equivalents and marketable
securities.
16
<PAGE>
NET LOSS
For the reasons stated above, the Company's net loss before minority interest
and extraordinary item increased to $34.1 million for the three months ended
June 30, 1997, from $10.4 million for the three months ended June 30, 1996.
Minority interests in net losses, representing minority investors' interests in
certain of the Company's subsidiaries, totaled $21,000 and $615,000 for the
three months ended June 30, 1997 and 1996, respectively. As a result, the
Company's net loss before extraordinary item was $34.1 million and $9.8 million
for the three months ended June 30, 1997 and 1996, respectively. The Company
recognized an extraordinary loss of $2.9 million related to the early
extinguishment of secured indebtedness on June 30, 1997. Inclusive of
extraordinary losses, the Company's net loss for the three months ended June 30,
1997 was $37.0 million as compared to a net loss of $9.8 million for the three
months ended June 30, 1996.
EBITDA
Earnings before interest, taxes, depreciation, amortization, minority interest
and extraordinary items (EBITDA) decreased to ($8.6) million for the three
months ended June 30, 1997, from ($3.9) million for the three months ended June
30, 1996, a decrease of $4.7 million. The decrease reflects the increasing
service and SG&A expenses noted above resulting from the acquisition,
development and expansion of the Company's networks. EBITDA is a measure
commonly used in the telecommunications industry and is presented to assist in
an understanding of the Company's operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUE
The Company's revenues increased to $48.3 million for the six months ended June
30, 1997 from $15.2 million for the six months ended June 30, 1996, an increase
of 218%. The increase in revenues reflects the impact of the Company's
acquisition and development activities as well as increased utilization of the
Company's network facilities arising from the sales of additional services to
current and new customers. A significant contributor to the overall revenue
growth has been the continued growth of local switched service revenues. Local
switched services revenues for the six months ended June 30, 1997, totaled $12.5
million as compared to $2.2 million for the six month period ended June 30,
1996. The increase in switched service revenue reflects continued growth in the
Michigan markets, where the Company has the most experience in providing
switched service, as well as significant growth in certain of the Company's
other markets.
17
<PAGE>
COSTS AND EXPENSES
Service costs increased to $26.8 million for the six months ended June 30, 1997
from $6.5 million for the six months ended June 30, 1996. The increase was due
primarily to the impact of the Company's acquisition and development activities,
including increasing costs associated with developing the Company's rapidly
growing local switched services and the Company's expanding long distance resale
operations.
The Company's SG&A for the six months ended June 30, 1997 were $36.5 million, as
compared with SG&A expenses of $15.3 million for the six months ended June 30,
1996. The increase was principally due to the increasing number and continued
expansion of the Company's networks, including added personnel costs and
marketing activities related to the introduction of switched services.
Depreciation and amortization expense increased to $21.0 million for the six
months ended June 30, 1997, from $5.6 million for the six months ended June 30,
1996, as a result of the Company's acquisitions and the continued expansion of
the Company's networks.
INTEREST INCOME (EXPENSE)
Interest expense totaling $32.9 million was recorded during the six months ended
June 30, 1997, as compared to interest expense of $11.6 million for the six
months ended June 30, 1996. The primary contributors to the substantial increase
in interest expense as compared to the comparable period in the prior year is
non-cash interest expense totaling $30.2 million primarily attributable to
accretion of the Company's senior discount notes issued during 1996 and to
accrued interest related to the issuance of senior notes in May 1997. Interest
of $1.6 million was capitalized for the six months ended June 30, 1997, related
to network construction projects. For the six months ended June 30, 1997 and
1996, interest income totaling $10.1 million and $6.3 million, respectively, was
derived from the Company's available cash and cash equivalents and marketable
securities.
NET LOSS
For the reasons stated above, the Company's net loss before minority interest
and extraordinary item increased to $58.8 million for the six months ended June
30, 1997, from $17.5 million for the six months ended June 30, 1996. Minority
interests in net losses, representing minority investors' interests in certain
of the Company's subsidiaries, totaled $29,000 and $1,138,000 for the six months
ended June 30, 1997 and 1996, respectively. As a result, the Company's net loss
before extraordinary item was $58.8 million and $16.4 million for the six months
ended June 30, 1997 and 1996, respectively. The Company recognized an
extraordinary loss of $2.9 million related to the early extinguishment of
secured indebtedness on June 30, 1997. Inclusive of extraordinary losses, the
Company's net loss for the six months ended June 30, 1997 was $61.6 million as
compared to a net loss of $16.4 million for the six months ended June 30, 1996.
18
<PAGE>
EBITDA
EBITDA decreased to ($15.0) million for the six months ended June 30, 1997, from
($6.6) million for the six months .ended June 30, 1996, a decrease of $8.4
million. The decrease reflects the increasing service and SG&A expenses noted
above resulting from the acquisition, development and expansion of the Company's
networks.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased from $879.6 million as of December 31,
1996, to $1,174.6 million at June 30, 1997. The Company's current assets of
$392.7 million at June 30, 1997, including cash and cash equivalents and
marketable securities of $357.3 million, exceeded current liabilities of $36.3
million, providing working capital of $356.4 million as compared to $435.3
million at December 31, 1996. Network and equipment totaled $531.5 million at
June 30, 1997 as compared to $306.5 million at December 31, 1996. Other assets,
principally goodwill, net of accumulated amortization, increased to $209.1
million at June 30, 1997, from $99.1 million at December 31, 1996, primarily as
a result of the Company's acquisitions of the Phoenix and MAN networks.
On February 4, 1997, the Company completed a secondary offering of 6,723,429
shares of common stock at a price of $25.00 per share. All of these shares were
sold by existing shareholders, and the Company did not receive any proceeds from
the sale of these shares. In conjunction with the offering, the underwriters
were granted an over-allotment option by the Company at $25.00 per share. This
option was fully exercised by the underwriters, and an additional 1,008,514
shares were issued by the Company. Gross proceeds to the Company from this
offering totaled approximately $25.2 million, and proceeds net of underwriting
discounts and expenses totaled approximately $23.2 million.
On May 29, 1997, the Company issued $250 million aggregate principal amount of
10.0% Senior Notes due June 1, 2007. The Company received proceeds net of
underwriting fees from the Senior Notes of approximately $242.8 million.
Interest on the 10.0% Senior Notes is payable semi-annually, commencing December
1, 1997.
On June 20, 1997, a financial institution committed to fully underwrite a $250
million senior secured credit facility for the Company.
In May 1997, the Company made an additional $4.0 million convertible preferred
stock investment in Verio, Inc. (Verio), a privately-held consolidator of ISPs.
On June 25, 1997, the Company purchased $50.0 million of 13.5% debt securities
in Verio. The Verio debt securities mature on June 15, 2004 and pay interest
semi-annually in arrears commencing December 15, 1997. The debt securities
include detachable warrants, allowing the Company to purchase common stock in
Verio at an exercise price of one cent per share. At June 30, 1997, the Company
holds shares of Verio preferred stock which are convertible into an aggregate of
19
<PAGE>
4,664,971 shares of Verio common stock and 400,000 warrants to purchase an
additional 704,000 share of Verio common stock, representing an approximate 23%
fully diluted equity interest.
On June 30, 1997, the Company repaid $50.0 million in outstanding secured
indebtedness with AT&T Credit Corporation. In conjunction with this repayment,
an extraordinary loss of approximately $2.9 million was charged to operations,
including write-downs of debt issuance costs and interest rate cap arrangements,
and applicable prepayment penalties.
The competitive local telecommunications services business is a
capital-intensive business. The Company's operations have required and will
continue to require substantial capital investment for (i) the installation of
electronics for switched services in the Company's operating networks; (ii) the
expansion and improvement of the Company's operating systems, including the
installation of capabilities to provide other enhanced services; and (iii) the
design, construction, development and acquisition of additional networks. For
the six months ended June 30, 1997 and 1996, the Company's capital expenditures,
primarily for installation of digital switches, expansion of existing networks,
and the design, construction, development, and acquisition of new networks
totaled $168.7 million and $63.2 million, respectively.
In response to the demand initially encountered for its services, the Company
will continue aggressive capital deployment plans for the development and
expansion of its existing networks to allow for an increased level of
demand-driven capital spending necessary to take full advantage of the
opportunities presented by offering a full array of local exchange services. In
addition, with the acquisition of MAN, the Company has an opportunity to
establish a strategic market presence in Texas, the third largest
telecommunications state in the country. The addition of these markets
represents a significant increase in the Company's addressable market potential,
to 44 markets. The Company currently estimates that it will spend approximately
$400 million during 1997 to fund these capital needs (including expenditures on
the networks acquired in the MAN acquisition). Such amounts are expected to be
funded from the Company's existing cash resources and from existing and future
credit facilities.
The Company's strategic plan calls for having systems in operation or under
development in a total of 50 cities by the end of 1998, which will require
substantial additional capital. The Company expects this expansion into
additional cities to be accomplished by the acquisition of existing networks as
well as the development of new networks. The Company will continue to evaluate
additional revenue opportunities in its existing markets and other strategic
initiatives, and as such opportunities may develop, the Company plans to make
additional capital investments in its networks that may be required to pursue
such opportunities, such as costs required to extend a network or install
additional telecommunications equipment to meet specific customer requirements.
Due to the number and variability of the factors which could affect the amount
of capital that will be required for such purposes, the Company cannot provide a
reasonable estimate of such additional capital needs. For example, the size of a
particular network to be developed or acquired and the types of electronics
installed can impact significantly the amount of capital required. Similarly,
the potential cost of acquiring additional networks is not determinable, and it
is possible that the Company could acquire existing
20
<PAGE>
networks using a variety of financing alternatives. The Company expects to meet
such additional capital needs with the proceeds from future credit facilities,
sales of additional equity securities and joint ventures. However, there can be
no assurance that the Company will be able to raise or generate sufficient funds
to enable it to meet all of its strategic objectives. Moreover, there can be no
assurance that actual expenditures will not be significantly higher or lower
than the Company's current estimates.
The Company intends to preserve financial flexibility in order to react to the
rapidly evolving telecommunications marketplace and new opportunities. The
Company will continue to take advantage of favorable financing arrangements,
including sales of debt and equity securities in the public and private markets,
to maintain this flexibility.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 establishes standards for the computation and presentation of earnings per
share for entities with publicly held common stock or potential common stock.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997, and requires retroactive restatement of all prior
period earnings per share data presented. The effect of SFAS No. 128 on the
financial periods presented is not material to the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
All items that are required to be recognized under accounting standards as
components of comprehensive income must be reported in a financial statement
with the same prominence as other financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this report which are not historical facts are
forward-looking statements that involve risks and uncertainties. Management
wishes to caution the reader that these forward-looking statements, such as the
Company's plans to have systems in operation or under construction in a total of
50 cities by the end of 1998 and its plans to offer switched and enhanced
services in all of its markets by the end of 1997, are only predictions; actual
events or results may differ materially as a result of risks facing the Company.
Such risks include, but are not limited to, the Company's ability to
successfully market its services to current and new customers, access markets,
identify, finance and complete suitable acquisitions, design fiber optic
backbone routes, install cable and facilities, including switching electronics,
and obtain rights-of-way, building access rights and any required governmental
authorizations, franchises and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions, as well as favorable regulatory,
legislative and judicial developments.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on April 29, 1997,
four proposals described in the Notice of Annual Meeting of Stockholders dated
March 28, 1997, were voted upon.
1. The shareholders elected three directors, Messrs. Robert F. Benbow and
Ronald H. VanderPol and Ms. Carol deB. Whitaker.
Directors For Withheld
------------------- ---------- ---------
Robert F. Benbow 28,127,569 19,513
Ronald H. VanderPol 26,720,494 1,426,588
Carol deB. Whitaker 28,050,986 96,096
2. The proposal to approve an amendment to the Company's Restated Certificate of
Incorporation to, among other things, increase the authorized number of
shares of Common Stock from 50 million shares to 150 million shares was
approved by a vote of 25,729,770 in favor to 2,396,837 against, with 20,475
abstaining and 0 broker non-votes.
3. The proposal to approve the adoption of the Brooks Fiber Properties, Inc.
1997 Stock Incentive Plan was approved by a vote of 18,707,151 in favor to
7,644,274 against, with 29,083 abstaining and 1,766,574 broker non-votes.
4. The proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending December 31, 1997, was
approved by a vote of 28,133,179 in favor to 9,623 against, with 4,280
abstaining.
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit No.
(Reference to Item 601(b)
of Regulation S-K) Description
------------------------- -------------------------------------------------
3.1 Second Restated Certificate of Incorporation of
the Company (incorporated by reference to
Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (File No. 333-29427) filed
with the Commission on June 17, 1997 (the
("June Form S-4")
3.2 By-laws of the Company, as amended on April 29,
1997 (incorporated by reference to Exhibit 3.2 to
the June Form S-4)
4.1 Rights Agreement dated February 29, 1996 between
the Company and The Boatmen's Trust Company, as
Rights Agent (incorporated by reference to
Exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File No. 333-1924) filed
with the Commission on March 4, 1996 (the "IPO
Form S-1"))
4.2 Amended and Restated Stockholders Agreement dated
as of June 15, 1995 (incorporated by reference to
Exhibit 4.3 to the IPO Form S-1)
4.3 Amended and Restated Registration Rights
Agreement dated as of June 15, 1995 (incorporated
by reference to Exhibit 4.4 to the IPO Form S-1)
10.1 Change of Control Severance Agreement effective
April 8, 1997, between the Company and
James C. Allen
10.2 Change of Control Severance Agreement effective
April 8, 1997, between the Company and
D. Craig Young
10.3 Change of Control Severance Agreement effective
April 8, 1997, between the Company and
David L. Solomon
10.4 Change of Control Severance Agreement effective
April 8, 1997, between the Company and
John C. Shapleigh
11 Statement Regarding Computation of Per Share
Earnings
27 Financial Data Schedule (furnished to the
Securities and Exchange Commission for Electronic
Data Gathering, Analysis, and Retrieval [EDGAR]
purposes only)
23
<PAGE>
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company filed
the following Current Reports on Form 8-K:
Dates of Earliest
Events Reported Item No.
-------------------------- ------------------------------------------------
March 28, 1997 5. Other Events
March 31, 1997 5. Other Events
May 5, 1997 (as amended by
Amendment No. 1 thereto) 2. Acquisition or Disposition of Assets
7. Financial Statements, Pro Forma
Financial Information and Exhibits*
May 29, 1997 5. Other Events
June 20, 1997 5. Other Events
----------
* The following financial statements were filed therewith:
a) Audited balance sheet of Metro Access Networks, Inc. (MAN) as of
December 31, 1996, and the related statements of operations,
changes in stockholders' equity and cash flows for the period then
ended.
b) Unaudited pro forma combined consolidated financial information
giving effect to the acquisition of MAN as of and for the year ended
December 31, 1996.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKS FIBER PROPERTIES, INC.
(Registrant)
Date: August 14, 1997 By: /S/ James C. Allen
------------------------------------
James C. Allen
(Chief Executive Officer)
Date: August 14, 1997 By: /S/ David L. Solomon
------------------------------------
David L. Solomon
(Principal Financial Officer)
25
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Number Description Page Number
- -------------- --------------------------------------------------- -----------
3.1 Second Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1
to the Company's Registration Statement on Form S-4
(File No. 333-29427) filed with the Commission on
June 17, 1997 (the ("June Form S-4")
3.2 By-laws of the Company, as amended on April 29,
1997 (incorporated by reference to Exhibit 3.2 to
the June Form S-4)
4.1 Rights Agreement dated February 29, 1996 between
the Company and The Boatmen's Trust Company, as
Rights Agent (incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form
S-1 (File No. 333-1924) filed with the Commission
on March 4, 1996 (the "IPO Form S-1"))
4.2 Amended and Restated Stockholders Agreement dated
as of June 15, 1995 (incorporated by reference to
Exhibit 4.3 to the IPO Form S-1)
4.3 Amended and Restated Registration Rights Agreement
dated as of June 15, 1995 (incorporated by
reference to Exhibit 4.4 to the IPO Form S-1)
10.1 Change of Control Severance Agreement effective 28 - 40
April 8, 1997, between the Company and James C.
Allen
10.2 Change of Control Severance Agreement effective 41 - 53
April 8, 1997, between the Company and D. Craig
Young
10.3 Change of Control Severance Agreement effective 54 - 66
April 8, 1997, between the Company and David L.
Solomon
10.4 Change of Control Severance Agreement effective 67 - 80
April 8, 1997, between the Company and John C.
Shapleigh
11 Computation of Earnings Per Share 81
27 Financial Data Schedule (furnished to the 82
Securities and Exchange Commission for Electronic
Data Gathering, Analysis, and Retrieval [EDGAR]
purposes only)
26
EXHIBIT 10.1
CHANGE OF CONTROL SEVERANCE AGREEMENT
AGREEMENT by and between Brooks Fiber Properties, Inc., a Delaware
corporation (the "Company"), and James C. Allen (the "Executive"), effective as
of the 8th day of April, 1997.
The Company wishes to assure that it will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company. The Board of Directors of the
Company (the "Board") believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company upon a Change of
Control, and to provide the Executive with compensation arrangements upon a
Change of Control which provide the Executive with individual financial security
and which are competitive with those of other corporations and, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) "Accrued Obligations" shall have the meaning set forth in Section 5
hereof.
(b) "Annual Bonus Target" shall be the specific amount determined at the
beginning of the year under the Company's bonus program by the Compensation
Committee or other authorized person as the amount of bonus Executive would
receive for the year in which a Date of Termination occurs assuming 100%
achievement of agreed-upon performance targets.
(c) The "Change of Control Date" shall be the first date during the
"Agreement Period" (as defined in Section1(c)) in which a Change of Control
occurs. Provided, however, that if the Executive's employment is terminated by
the Company prior to the date on which a Change of Control occurs, and the
Executive can reasonably demonstrate that such termination by the Company was in
contemplation of a Change of Control, then for all purposes of this Agreement
the "Change of Control Date" shall mean the date immediately prior to the date
of such termination.
(d) The "Agreement Period" is the period commencing on the date hereof and
ending on the earlier to occur of (i) the second anniversary of such date or
(ii) the day of the Executive's retirement after attaining age 65
("Retirement").
(e) "Change of Control" shall mean:
(i) The acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange
<PAGE>
Act"), other than the Company or any of its wholly-owned subsidiaries, or any
employee benefit plan of the Company and/or any of its wholly-owned
subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 40% or more of either the then
outstanding shares of the Company's Common Stock or the combined voting power of
the Company's then outstanding voting securities in a single transaction or
series of related transactions; or
(ii) Individuals who, as the date hereof, constitute the Board (as of
the date hereof the "Continuing Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved in advance by a vote of at least two-thirds
of the Continuing Directors (other than a nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
solicitation with respect to the election or removal of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a Continuing Director; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger, consolidation, liquidation or dissolution of the Company or of the sale
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company (excluding a transaction in which the
stockholders of the Company immediately prior to such transaction retain
beneficial ownership, directly or indirectly, of 60% or more of the outstanding
equity of the resulting or successor entity from such transaction); or
(iv) Any other event that two-thirds of the Continuing Directors in
its sole discretion shall determine constitutes a Change of Control.
(f) "Cause" for termination of Executive's employment shall be deemed to
exist if the Board of Directors of the Company should determine that Executive
has committed of any of the following: (i) fraud; (ii) misappropriation of
corporate property or funds; (iii) embezzlement; (iv) malfeasance in office; (v)
misfeasance in office which is willful or grossly negligent; or (vi) nonfeasance
in office which is willful or grossly negligent.
(g) "Company" as used herein includes Brooks Fiber Properties, Inc. and any
of its subsidiaries and divisions and, subject to Section 13(b) hereof, any
successor.
(h) "Good Reason" means (i) any purported termination by the Company of
Executive's employment for Cause which is finally determined by arbitration
under Section 14(h) of this Agreement not to be for Cause or (ii) continued
breach by the Company, after written notice and the inability to cure such
breach within thirty (30) days following receipt of such notice, of the
provisions of Section 3 or Section 13(b) of this Agreement.
(i) "Termination Multiplier" shall be three if the Date of Termination is
within the first eighteen months following a Change of Control, and if
thereafter it shall be a fraction the numerator of which shall be the number of
days remaining in the Protection Period after the Date of Termination and the
denominator of which shall be 365.
2
<PAGE>
2. PROTECTION PERIOD. The Company hereby agrees to provide to Executive the
benefits and protections described herein, in consideration of the services
provided to the Company by Executive after the date of this Agreement and of the
agreements of Executive herein, for the period commencing on the Change of
Control Date and ending on the earlier to occur of (a) the third anniversary of
the Change of Control Date or (b) the day of the Executive's Retirement.
3. TERMS OF EMPLOYMENT.
(a) Position and Duties. (i) During the Protection Period, (A) Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the Change
of Control Date and (B) except when traveling in the normal course of business,
Executive's services shall be performed at the location where Executive was
employed immediately preceding the Change of Control Date or any office or
location less than twenty-five (25) miles from such location; provided, however,
that Executive shall be deemed conclusively to have agreed to the terms of any
alternative job assignment unless, within thirty (30) days after being informed
by the Company of such alternative job assignment, Executive informs the Company
in writing that Executive deems such alternative job assignment to be
inconsistent with the requirements of clause (A) and/or clause (B) above and the
reasons therefor and the Company fails to rectify any such inconsistencies
within thirty (30) days of receiving such Notice. No change in status, office,
title or reporting requirements shall be deemed to have occurred by reason of a
change in the personnel holding any position in the Company or by reason of a
change which is inherent in the occurrence of the transaction constituting a
Change of Control.
(ii) During the Protection Period, and excluding any periods of
vacation and sick leave to which Executive is entitled, Executive agrees to
devote his full time and attention spent on business matters to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to Executive hereunder, to use Executive's reasonable
best efforts to perform faithfully and efficiently such responsibilities. During
the Protection Period it shall not be a violation of this Agreement for
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions, (C) manage personal investments and (D) perform such other
activities as the Board of Directors may approve, so long as such activities do
not interfere with the performance of Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by Executive prior to the Change of Control Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Change of Control Date shall not thereafter be
deemed to interfere with the performance of Executive's responsibilities to the
Company.
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(b) Compensation.
(i) Base Salary. During the Protection Period, Executive shall receive
a base salary ("Base Salary") at a monthly rate at least equal to the highest
monthly base salary paid to Executive by the Company during the 90-day period
immediately preceding the Change of Control Date. During the Protection Period,
Executive's Base Salary shall be reviewed at least annually and may be increased
at any time and from time to time as the Company shall deem to be consistent
with increases in base salary awarded in the ordinary course of business to
other key executives of the Company. During the Protection Period, Executive's
Base Salary shall not be reduced after any such increase, except as part of, and
in an amount not greater proportionately than, any across-the-board cut in the
pay of other key executives of the Company.
(ii) Annual Bonus and Incentive Plans and Programs. In addition to
Base Salary, during the Protection Period, Executive shall be entitled to
receive an annual cash bonus and to participate in other incentive plans and
programs, which bonus and other incentive plans and programs shall, in the
aggregate, provide Executive with benefits and reward opportunities at least as
favorable as the benefits and reward opportunities provided by the Company for
Executive under such bonus and other incentive plans and programs in effect at
any time during the 90-day period immediately preceding the Change of Control
Date.
(iii) Savings, Retirement and Welfare Plans and Programs; Expenses and
Fringe Benefits. During the Protection Period, Executive and/or Executive's
family, as the case may be, shall be eligible for participation in and shall
receive all benefits under savings, retirement, welfare benefit (including
without limitation, medical, prescription, dental, disability, salary
continuance, executive life, group life, accidental death and travel accident
insurance) expense reimbursement and fringe benefit plans, programs and policies
which, in the aggregate, provide to Executive and/or Executive's family, as the
case may be, at least as much benefit as such plans, programs and policies
provided to Executive and/or Executive's family at any time during the 90-day
period immediately preceding the Change of Control Date. This shall include,
without limitation, continued use of the Company's aircraft, so long as the
Company continues to own a corporate aircraft, in accordance with practices and
policies of the Company which are at least comparable to those in effect during
the 90-day period immediately preceding the Change of Control Date.
(iv) Office and Support Staff. During the Protection Period, Executive
shall be entitled to an office and to secretarial and other assistance at least
comparable to those provided to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(v) Vacation. During the Protection Period, Executive shall be
entitled to paid vacation in accordance with the policies which are at least
comparable to those applicable to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(vi) Relocation. If Executive agrees to be based more than twenty-five
(25) miles from Executive's current location, Executive shall be entitled to
relocation benefits
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which are at least comparable to those enjoyed by Executive at any time during
the 90-day period immediately preceding the Change of Control Date.
4. TERMINATION.
(a) Termination. Executive's employment may be terminated at any time
during the Protection Period for any of the following reasons:
(i) Death. This Agreement shall terminate automatically upon
Executive's death.
(ii) Disability. The Company may terminate this Agreement, after
having established Executive's Disability (pursuant to the definition of
"Disability" set forth below), by giving to Executive written notice of its
intention to terminate Executive's employment. In such a case, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice (the "Disability Change of Control Date"), if, within the
30 days after such receipt, Executive shall not have returned to full-time
performance of Executive's duties. For purposes of this Agreement, "Disability"
means a condition which has lasted for at least 90 consecutive days in any 365
day period and is determined by a physician selected by the Company or its
insurers and acceptable to Executive or Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably) to prevent
Executive from discharging his responsibilities as an employee of the Company in
accordance with this Agreement.
(iii) Cause. The Company may terminate Executive's employment for
Cause.
(iv) Good Reason. Executive's employment may be terminated by
Executive for Good Reason.
(b) Notice of Termination. Any termination by the Company for Cause or by
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 14(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date.
(c) Date of Termination. If the Executive's employment is terminated by the
Company other than for Cause, Death or Disability or by Executive for Good
Reason, the Date of Termination shall be two (2) weeks after delivery of the
Notice of Termination. If Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be Executive's date of death
or Disability Change of Control Date, as the case may be. If Executive's
employment is terminated by the Company for Cause or by Executive for other than
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Good Reason, the Date of Termination means the date of receipt of the Notice of
Termination or any later date that may be specified therein.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's death, this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement, other than those obligations accrued or earned by Executive hereunder
as of the Date of Termination, including, for this purpose (i) Executive's full
Base Salary, plus a proportionate part of Executive's Annual Bonus target,
through the Date of Termination as in effect on the Date of Termination, (ii)
any accrued vacation pay not yet paid by the Company and (iii) any other amounts
or benefits owing to Executive under the then applicable benefit plans or
policies of the Company (such amounts and benefits specified in clauses (i),
(ii) and (iii) are hereinafter referred to as "Accrued Obligations"). The
Company shall pay the amounts specified in clauses (i) and (ii) promptly after
the Date of Termination (and in no case later than 30 days after the Date of
Termination) and shall pay the amounts and benefits in clause (iii) promptly
when due.
(b) Disability. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's Disability, this Agreement shall terminate
without further obligations to Executive, other than the Accrued Obligations, on
Executive's Disability Change of Control Date. Anything in this Agreement to the
contrary notwithstanding, Executive shall be entitled after the Disability
Change of Control Date to receive disability and other benefits at least equal
to those provided by the Company to disabled Executives and/or their families in
accordance with such plans, programs and policies relating to Disability, if
any, applicable to Executive at any time during the 90-day period immediately
preceding the Change of Control Date.
(c) Termination by the Company for Cause; Termination by Executive for
other than Good Reason. If, during the Protection Period, Executive's employment
shall be terminated by the Company for Cause or by Executive other than for Good
Reason, this Agreement shall terminate without further obligations to Executive,
other than for the payment of Base Salary through the Date of Termination.
(d) Termination by Executive for Good Reason; Termination by the Company
for Other Than for Cause, Death or Disability. If, during the Protection Period,
the Company shall terminate Executive's employment other than for Cause, death
or Disability, or the employment of Executive shall be terminated by Executive
for Good Reason, Executive shall be entitled to the following payments and
benefits determined in full compliance with the obligations of the Company
pursuant to this Agreement; provided that in the case of the payments and
benefits specified in subparagraphs (i)B, (i)C, (ii) and (iii) Executive shall
have executed and delivered to the Company an effective release of claims in the
form attached hereto as Exhibit A with such changes thereto which, in the
opinion of counsel for the Company, are required to provide the Company with
protection from any future claims by Executive arising out of his employment or
the cessation thereof:
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(i) Tthe Company shall pay to Executive the amounts payable pursuant
to subparagraphs A and D on the first normal salary payment date occurring after
the Date of Termination and shall pay to Executive the amounts payable pursuant
to subparagraphs B and C on the fifth day following the expiration of any
revocation period (without revocation occurring) of the release referred to
above:
A. to the extent not theretofore paid, Executive's full Base
Salary, plus a proportionate part of Executive's Annual Bonus Target,
through the Date of Termination, as in effect on the Date of Termination;
and
B. the Annual Bonus Target applicable to Executive immediately
preceding the Date of Termination multiplied by the Termination Multiplier;
and
C. Executive's annual Base Salary, as in effect on the Date of
Termination multiplied by the Termination Multiplier; and
D. all other amounts accrued or earned by Executive through the
Date of Termination and amounts otherwise owing under the then existing
plans and policies at the Company, including all amounts of previously
deferred compensation; and
(ii) all of Executive's stock options and other stock awards will be
fully vested.
(iii) for the period from the Date of Termination through the third
anniversary of the Date of Termination if such occurred within the first 18
months following the Change of Control or, if the Date of Termination is
thereafter, through the end of the Protection Period, the Company shall continue
group health benefits as to which Executive or Executive's qualified
beneficiaries would be entitled to continuation coverage under the provisions of
COBRA to Executive and/or Executive's family at least equal to those which would
have been provided to them in accordance with the health and dental plans,
programs and policies provided by the Company to employees and/or their families
if Executive's employment had not been terminated, including health insurance
and dental insurance, if and as in effect at any time during the 90-day period
immediately preceding the Change of Control Date or, if more favorable to
Executive, as in effect at any time thereafter with respect to other key
executives and their families, or after the Company may no longer cover
Executive and/or Executive's family under its group health plan, through a
comparable health plan generally available to individual subscribers; provided,
however, that such benefit continuation shall cease when and to the extent
Executive becomes eligible for coverage through a new employer.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall guarantee,
entitle, prevent or limit Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights that Executive may have
under any stock option or other agreements with the Company.
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Amounts which are vested benefits or which Executive is otherwise entitled to
receive under any plan or program of the Company at or subsequent to the Date of
Termination shall be payable in accordance with such plan or program.
7. COOPERATION. Notwithstanding anything to the contrary contained herein,
payment of salary continuation and other severance benefits pursuant to Section
5 hereof is conditional upon Executive cooperating fully with the Company in
connection with any Change of Control or proposed Change of Control and all
matters relating to Executive's employment with the Company and assisting the
Company as requested in transitioning Executive's responsibilities to
Executive's replacement as well as upon Executive refraining from doing or
saying anything derogatory about the Company or its businesses or personnel.
8. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company and its businesses, which shall have been
obtained by Executive during Executive's employment by the Company and which
shall not be public knowledge (other than by acts by Executive in violation of
this Agreement). Whether before or after termination of the Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company, communicate or divulge any such secret or confidential
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
9. COVENANT NOT TO COMPETE.
(a) Non-Competition. Executive agrees that, from the date hereof to the
sooner to occur of (i) the end of the eighteenth month following the Date of
Termination or (ii) the end of the Protection Period (including any portion
thereof remaining after termination of Executive's employment or this
Agreement), Executive will not directly or indirectly be employed by, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or act as a consultant to, engage in, or be connected
in any manner with, any firm which is or may reasonably be found to be in
competition with the competitive access business of the Company and its
subsidiaries as such business may exist at any time from the date of this
Agreement through the Date of Termination, except that Executive may own not
more than five percent (5%) of any class of publicly traded securities of a
competitor.
(b) Non-Solicitation. Executive agrees that, during the Agreement Period
and the Protection Period (including any portion thereof remaining after
termination of Executive's employment or this Agreement), Executive will not:
(i) Solicit, raid, entice or induce any present or prospective
employee of the Company to be employed by any competitor of the Company;
(ii) Solicit business for any competitor from, or transact business
for any competitor with, any person, firm or corporation which was, at any time
during Executive's employment hereunder, a customer of the Company; or
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(iii) Assist a competitor in taking such action.
(c) Remedies. Executive agrees that any breach or threatened breach or
alleged breach or alleged threatened breach by Executive of any provision of
this Section 9 will entitle the Company, in addition to any other legal remedies
available to it, to apply to any court of competent jurisdiction to enjoin the
breach or threatened breach or alleged breach or alleged threatened breach, it
being acknowledged and agreed that any such material breach will cause
irreparable injury to the Company and that any damages will not provide adequate
remedies to the Company. The parties understand and intend that each restriction
agreed to by Executive will be construed as separable and divisible from every
other restriction, and that the unenforceability, in whole or in part, of any
restriction will not affect the enforceability of the remaining restrictions and
that one or more or all of such restrictions may be enforced in whole or in part
as the circumstances warrant and each restriction may be construed or altered by
a judicial authority in order to make such restriction enforceable. No waiver of
any one breach of the restrictions contained herein will be deemed a waiver of
any future breach. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
(d) If Executive's employment is terminated in accordance with paragraph
5(c), Executive shall have no obligation under paragraphs 9(a) and 9(b).
10. EXCLUSIVE REMEDY. Executive's rights to salary continuation and other
severance benefits pursuant to Section 5 hereof shall be Executive's sole and
exclusive remedy for any termination of Executive's employment by the Company
other than for Death, Disability or Cause or by Executive for Good Reason. The
payments, severance benefits and severance protections provided to Executive
pursuant to this Agreement are provided in lieu of any severance payments,
severance benefits and severance protections provided in any other plan or
policy of the Company, except as may be expressly provided in writing under the
terms of any plan or policy of the Company, or in a written agreement between
the Company and Executive entered into after the date of this Agreement. In no
event shall Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably
incur as a result of any contest by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement which is
ultimately decided in favor of Executive.
11. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Gross-up Payment. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be
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entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax, imposed
upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon such payment or distribution.
(b) Determination of Gross-Up. Subject to the provisions of paragraph (c)
of this Section 11, all determinations required to be made under this Section
11, including whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by an accounting firm satisfactory to the
Company and Executive ("Accounting Firm"). The Accounting Firm shall make such
determination and provide detailed supporting calculations to both the Company
and Executive within fifteen (15) business days after it is requested to do so.
The initial Gross-Up Payment, if any, as determined pursuant to this paragraph
(b) of this Section 11, shall be paid to Executive within five (5) business days
after the Company's receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that he has legal authority
satisfying the criteria set forth in Treasury Regulation Section 1.6661-3 or
similar successor provisions not to report any Excise Tax on his federal income
tax return. Any determination by the Accounting Firm shall be binding upon the
Company and Executive.
(c) Dispute of Tax Claim. Executive shall notify the Company in writing of
any proposed assessment or proposed adjustment by the Internal Revenue Service
("IRS") pursuant to an audit of Executive's federal income tax return or
otherwise, that, if successful, would require the payment by the Company of a
Gross-Up Payment (hereinafter referred to as a "Claim"). Such notice shall be
given as soon as practicable but no later than ten (10) business days after the
earlier of (i) the receipt by Executive of a written notice of proposed
adjustment from the IRS or (ii) the receipt by Executive of a statutory notice
of deficiency. Such notice by Executive to the Company shall include (i) notice
of the amount of the proposed assessment or proposed adjustment which relates to
the Claim and the taxable year or years in which the Claim arises, (ii) the
general nature of the Claim and (iii) all relevant written reports of the
examining agent relating to the Claim. Within thirty (30) days of (i) the
receipt by Executive of a final assessment or (ii) the execution by Executive
and the IRS of a closing agreement, with respect to any tax year of Executive in
which a Claim has been raised, pursuant to which Executive is required to pay
any amount with respect to the Claim, Executive shall provide the Company and
the Accounting Firm with a copy of such assessment or agreement, together with
supporting documents sufficient to determine the amount of such tax liability
that was attributable to the Claim. The Accounting Firm shall determine the
amount Gross-Up Payment under this Agreement due to such tax liability and the
Company will make such Gross-Up Payment to Executive within five (5) business
days after its receipt of such determination.
12. STATEMENT OF INTENTION. It is the intention of the parties hereto that,
prior to the Change of Control Date, this Agreement shall not create any rights
or obligations in Executive or the Company, or require any payments by the
Company to Executive, except as expressly provided herein.
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13. SUCCESSORS.
(a) Executive. This Agreement is personal to Executive and without the
prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall include any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
14. MISCELLANEOUS.
(a) Interpretation. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed to
Executive at Executive's address on the payroll records of the Company and to
the Company as follows:
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
Attention: Chairman
with a copy to:
Chairman of the Compensation Committee
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
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Any party may change the address to which notices are to be addressed by giving
the other party notice in the manner herein set forth. Notice and communications
shall be effective when actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) No Waiver. The failure of Executive or the Company to insist upon
strict compliance with any provision hereof shall not be deemed to be a waiver
of such provision or any other provision thereof.
(f) Entire Agreement; Amendments. This Agreement embodies the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supercedes all prior and contemporaneous agreements and
understandings relative to such subject matter. This Agreement may be amended or
superceded only by a written instrument executed by both Executive and the
Company. Any such written instrument must be approved by either the Company's
Board of Directors (the "Board") or the Compensation Committee of the Board (or
in the event of a Change of Control, such instrument may also be approved by the
Board of Directors or Compensation Committee of either (i) any successor to the
Company or (ii) any parent of the Company or its successor) prior to the time
that it is executed by the Company.
(g) At Will Employment. Executive and the Company acknowledge that the
employment of Executive by the Company is "at will" and may be terminated by
either Executive or the Company at any time.
(h) Dispute Resolution Procedures. If any question shall arise in regard to
the interpretation of any provision of this Agreement or as to the rights and
obligations of either of the parties hereunder, Executive and a designated
representative of the Company shall meet with each other to negotiate and
attempt to resolve such question in good faith. Executive and such
representative may, if they so desire, consult outside experts for assistance in
arriving at a resolution. In the event that a resolution is not achieved within
fifteen (15) days after their first meeting, then either party may submit the
question for final resolution by binding arbitration in accordance with the
rules and procedures of the American Arbitration Association applicable to
commercial transactions, and judgment upon any award thereon may be entered in
any court having jurisdiction thereof. The arbitration shall be held in St.
Louis, Missouri. In the event of any arbitration, Executive shall select one
arbitrator, the Company shall select one arbitrator and the two arbitrators so
selected shall select a third arbitrator, any two of which arbitrators together
shall make the necessary determinations. All out-of-pocket costs and expenses of
the parties in connection with such arbitration, including, without limitation,
the fees of the arbitrators and any administration fees and reasonable
attorney's fees and expenses, shall be borne by the parties in
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such proportions as the arbitrators shall decide that such expenses should, in
equity, be apportioned. This Section 14(h) shall not be applicable to matters
arising out of Executive's obligations pursuant to Section 9 hereof.
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement
as of the day and year first above written.
Executive:
James C. Allen
-------------------------------------------
James C. Allen
Company:
Brooks Fiber Properties, Inc.
By: G. Jackson Tankersley, Jr.
--------------------------------------
G. Jackson Tankersley, Jr.
Chairman of the Compensation Committee
13
EXHIBIT 10.2
CHANGE OF CONTROL SEVERANCE AGREEMENT
AGREEMENT by and between Brooks Fiber Properties, Inc., a Delaware
corporation (the "Company"), and D. Craig Young (the "Executive"), effective as
of the 8th day of April, 1997.
The Company wishes to assure that it will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company. The Board of Directors of the
Company (the "Board") believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company upon a Change of
Control, and to provide the Executive with compensation arrangements upon a
Change of Control which provide the Executive with individual financial security
and which are competitive with those of other corporations and, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) "Accrued Obligations" shall have the meaning set forth in Section 5
hereof.
(b) "Annual Bonus Target" shall be the specific amount determined at the
beginning of the year under the Company's bonus program by the Compensation
Committee or other authorized person as the amount of bonus Executive would
receive for the year in which a Date of Termination occurs assuming 10%
achievement of agreed-upon performance targets.
(c) The "Change of Control Date" shall be the first date during the
"Agreement Period" (as defined in Section 1(c)) in which a Change of Control
occurs. Provided, however, that if the Executive's employment is terminated by
the Company prior to the date on which a Change of Control occurs, and the
Executive can reasonably demonstrate that such termination by the Company was in
contemplation of a Change of Control, then for all purposes of this Agreement
the "Change of Control Date" shall mean the date immediately prior to the date
of such termination.
(d) The "Agreement Period" is the period commencing on the date hereof and
ending on the earlier to occur of (i) the second anniversary of such date or
(ii) the day of the Executive's retirement after attaining age 65
("Retirement").
(e) "Change of Control" shall mean:
(i) The acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange
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Act"), other than the Company or any of its wholly-owned subsidiaries, or any
employee benefit plan of the Company and/or any of its wholly-owned
subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 40% or more of either the then
outstanding shares of the Company's Common Stock or the combined voting power of
the Company's then outstanding voting securities in a single transaction or
series of related transactions; or
(ii) Individuals who, as the date hereof, constitute the Board (as of
the date hereof the "Continuing Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved in advance by a vote of at least two-thirds
of the Continuing Directors (other than a nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
solicitation with respect to the election or removal of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a Continuing Director; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger, consolidation, liquidation or dissolution of the Company or of the sale
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company (excluding a transaction in which the
stockholders of the Company immediately prior to such transaction retain
beneficial ownership, directly or indirectly, of 60% or more of the outstanding
equity of the resulting or successor entity from such transaction); or
(iv) Any other event that two-thirds of the Continuing Directors in
its sole discretion shall determine constitutes a Change of Control.
(f) "Cause" for termination of Executive's employment shall be deemed
to exist if the Board of Directors of the Company should determine that
Executive has committed of any of the following: (i) fraud; (ii)
misappropriation of corporate property or funds; (iii) embezzlement; (iv)
malfeasance in office; (v) misfeasance in office which is willful or grossly
negligent; or (vi) nonfeasance in office which is willful or grossly negligent.
(g) "Company" as used herein includes Brooks Fiber Properties, Inc.
and any of its subsidiaries and divisions and, subject to Section 13(b) hereof,
any successor.
(h) "Good Reason" means (i) any purported termination by the Company
of Executive's employment for Cause which is finally determined by arbitration
under Section 14(h) of this Agreement not to be for Cause or (ii) continued
breach by the Company, after written notice and the inability to cure such
breach within thirty (30) days following receipt of such notice, of the
provisions of Section 3 or Section 13(b) of this Agreement.
(i) "Termination Multiplier" shall be 3 if the Date of Termination is
within the first 18 (eighteen) months following a Change of Control, and if
thereafter it shall be a fraction the numerator of which shall be the number of
days remaining in the Protection Period after the Date of Termination and the
denominator of which shall be 365.
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2. PROTECTION PERIOD. The Company hereby agrees to provide to Executive the
benefits and protections described herein, in consideration of the services
provided to the Company by Executive after the date of this Agreement and of the
agreements of Executive herein, for the period commencing on the Change of
Control Date and ending on the earlier to occur of (a) the third anniversary of
the Change of Control Date or (b) the day of the Executive's Retirement.
3. TERMS OF EMPLOYMENT.
(a) Position and Duties. (i) During the Protection Period, (A) Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the Change
of Control Date and (B) except when traveling in the normal course of business,
Executive's services shall be performed at the location where Executive was
employed immediately preceding the Change of Control Date or any office or
location less than twenty-five (25) miles from such location; provided, however,
that Executive shall be deemed conclusively to have agreed to the terms of any
alternative job assignment unless, within thirty (30) days after being informed
by the Company of such alternative job assignment, Executive informs the Company
in writing that Executive deems such alternative job assignment to be
inconsistent with the requirements of clause (A) and/or clause (B) above and the
reasons therefor and the Company fails to rectify any such inconsistencies
within thirty (30) days of receiving such Notice. No change in status, office,
title or reporting requirements shall be deemed to have occurred by reason of a
change in the personnel holding any position in the Company or by reason of a
change which is inherent in the occurrence of the transaction constituting a
Change of Control.
(ii) During the Protection Period, and excluding any periods of
vacation and sick leave to which Executive is entitled, Executive agrees to
devote his full time and attention spent on business matters to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to Executive hereunder, to use Executive's reasonable
best efforts to perform faithfully and efficiently such responsibilities. During
the Protection Period it shall not be a violation of this Agreement for
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions, (C) manage personal investments, and (D) perform such other
activities as the Board of Directors may approve, so long as such activities do
not interfere with the performance of Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by Executive prior to the Change of Control Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Change of Control Date shall not thereafter be
deemed to interfere with the performance of Executive's responsibilities to the
Company.
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(b) Compensation.
(i) Base Salary. During the Protection Period, Executive shall receive
a base salary ("Base Salary") at a monthly rate at least equal to the highest
monthly base salary paid to Executive by the Company during the 90-day period
immediately preceding the Change of Control Date. During the Protection Period,
Executive's Base Salary shall be reviewed at least annually and may be increased
at any time and from time to time as the Company shall deem to be consistent
with increases in base salary awarded in the ordinary course of business to
other key executives of the Company. During the Protection Period, Executive's
Base Salary shall not be reduced after any such increase, except as part of, and
in an amount not greater proportionately than, any across-the-board cut in the
pay of other key executives of the Company.
(ii) Annual Bonus and Incentive Plans and Programs. In addition to
Base Salary, during the Protection Period, Executive shall be entitled to
receive an annual cash bonus and to participate in other incentive plans and
programs, which bonus and other incentive plans and programs shall, in the
aggregate, provide Executive with benefits and reward opportunities at least as
favorable as the benefits and reward opportunities provided by the Company for
Executive under such bonus and other incentive plans and programs in effect at
any time during the 90-day period immediately preceding the Change of Control
Date.
(iii) Savings, Retirement and Welfare Plans and Programs; Expenses and
Fringe Benefits. During the Protection Period, Executive and/or Executive's
family, as the case may be, shall be eligible for participation in and shall
receive all benefits under savings, retirement, welfare benefit (including
without limitation, medical, prescription, dental, disability, salary
continuance, executive life, group life, accidental death and travel accident
insurance) expense reimbursement and fringe benefit plans, programs and policies
which, in the aggregate, provide to Executive and/or Executive's family, as the
case may be, at least as much benefit as such plans, programs and policies
provided to Executive and/or Executive's family at any time during the 90-day
period immediately preceding the Change of Control Date.
(iv) Office and Support Staff. During the Protection Period, Executive
shall be entitled to an office and to secretarial and other assistance at least
comparable to those provided to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(v) Vacation. During the Protection Period, Executive shall be
entitled to paid vacation in accordance with the policies which are at least
comparable to those applicable to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(vi) Relocation. If Executive agrees to be based more than twenty-five
(25) miles from Executive's current location, Executive shall be entitled to
relocation benefits which are at least comparable to those enjoyed by Executive
at any time during the 90-day period immediately preceding the Change of Control
Date.
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4. TERMINATION.
(a) Termination. Executive's employment may be terminated at any time
during the Protection Period for any of the following reasons:
(i) Death. This Agreement shall terminate automatically upon
Executive's death.
(ii) Disability. The Company may terminate this Agreement, after
having established Executive's Disability (pursuant to the definition of
"Disability" set forth below), by giving to Executive written notice of its
intention to terminate Executive's employment. In such a case, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice (the "Disability Change of Control Date"), if, within the
30 days after such receipt, Executive shall not have returned to full-time
performance of Executive's duties. For purposes of this Agreement, "Disability"
means a condition which has lasted for at least 90 consecutive days in any 365
day period and is determined by a physician selected by the Company or its
insurers and acceptable to Executive or Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably) to prevent
Executive from discharging his responsibilities as an employee of the Company in
accordance with this Agreement.
(iii) Cause. The Company may terminate Executive's employment for
Cause.
(iv) Good Reason. Executive's employment may be terminated by
Executive for Good Reason.
(b) Notice of Termination. Any termination by the Company for Cause or by
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 14(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date.
(c) Date of Termination. If the Executive's employment is terminated by the
Company other than for Cause, Death or Disability or by Executive for Good
Reason, the Date of Termination shall be two (2) weeks after delivery of the
Notice of Termination. If Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be Executive's date of death
or Disability Change of Control Date, as the case may be. If Executive's
employment is terminated by the Company for Cause or by Executive for other than
Good Reason, the Date of Termination means the date of receipt of the Notice of
Termination or any later date that may be specified therein.
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5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's death, this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement, other than those obligations accrued or earned by Executive hereunder
as of the Date of Termination, including, for this purpose (i) Executive's full
Base Salary, plus a proportionate part of Executive's Annual Bonus target,
through the Date of Termination as in effect on the Date of Termination, (ii)
any accrued vacation pay not yet paid by the Company and (iii) any other amounts
or benefits owing to Executive under the then applicable benefit plans or
policies of the Company (such amounts and benefits specified in clauses (i),
(ii) and (iii) are hereinafter referred to as "Accrued Obligations"). The
Company shall pay the amounts specified in clauses (i) and (ii) promptly after
the Date of Termination (and in no case later than 30 days after the Date of
Termination) and shall pay the amounts and benefits in clause (iii) promptly
when due.
(b) Disability. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's Disability, this Agreement shall terminate
without further obligations to Executive, other than the Accrued Obligations, on
Executive's Disability Change of Control Date. Anything in this Agreement to the
contrary notwithstanding, Executive shall be entitled after the Disability
Change of Control Date to receive disability and other benefits at least equal
to those provided by the Company to disabled Executives and/or their families in
accordance with such plans, programs and policies relating to Disability, if
any, applicable to Executive at any time during the 90-day period immediately
preceding the Change of Control Date.
(c) Termination by the Company for Cause; Termination by Executive for
other than Good Reason. If, during the Protection Period, Executive's employment
shall be terminated by the Company for Cause or by Executive other than for Good
Reason, this Agreement shall terminate without further obligations to Executive,
other than for the payment of Base Salary through the Date of Termination.
(d) Termination by Executive for Good Reason; Termination by the Company
for Other Than for Cause, Death or Disability. If, during the Protection Period,
the Company shall terminate Executive's employment other than for Cause, death
or Disability, or the employment of Executive shall be terminated by Executive
for Good Reason, Executive shall be entitled to the following payments and
benefits determined in full compliance with the obligations of the Company
pursuant to this Agreement; provided that in the case of the payments and
benefits specified in subparagraphs (i)B, (i)C, (ii) and (iii) Executive shall
have executed and delivered to the Company an effective release of claims in the
form attached hereto as Exhibit A with such changes thereto as, in the opinion
of counsel for the Company, are required to provide the Company with protection
from any future claims by Executive arising out of his employment or the
cessation thereof:
(i) the Company shall pay to Executive the amounts payable pursuant to
subparagraphs A and D on the first normal salary date occurring after the Date
of Termination
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and shall pay to Executive the amounts payable pursuant to subparagraphs B and C
on the fifth day following the expiration of any revocation period (without
revocation occurring) of the release referred to above:
A. to the extent not theretofore paid, Executive's full Base
Salary, plus a proportionate part of Executive's Annual Bonus Target,
through the Date of Termination, as in effect on the Date of Termination;
and
B. the Annual Bonus Target applicable to Executive immediately
preceding the Date of Termination multiplied by the Termination Multiplier;
and
C. Executive's annual Base Salary, as in effect on the Date of
Termination multiplied by the Termination Multiplier; and
D. all other amounts accrued or earned by Executive through the
Date of Termination and amounts otherwise owing under the then existing
plans and policies at the Company, including all amounts of previously
deferred compensation; and
(ii) all of Executive's stock options and other stock awards will be
fully vested.
(iii) for the period from the Date of Termination through the third
anniversary of the Date of Termination if such occurred within the first 18
months following the Change of Control or, if the Date of Termination is
thereafter, through the end of the Protection Period, the Company shall continue
group health benefits as to which Executive or Executive's qualified
beneficiaries would be entitled to continuation coverage under the provisions of
COBRA to Executive and/or Executive's family at least equal to those which would
have been provided to them in accordance with the health and dental plans,
programs and policies provided by the Company to employees and/or their families
if Executive's employment had not been terminated, including health insurance
and dental insurance, if and as in effect at any time during the 90-day period
immediately preceding the Change of Control Date or, if more favorable to
Executive, as in effect at any time thereafter with respect to other key
executives and their families; provided, however, that such benefit continuation
shall cease when and to the extent Executive becomes eligible for coverage
through a new employer.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall guarantee,
entitle, prevent or limit Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights that Executive may have
under any stock option or other agreements with the Company. Amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan or program of the Company at or subsequent to the Date of Termination shall
be payable in accordance with such plan or program.
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7. COOPERATION. Notwithstanding anything to the contrary contained herein,
payment of salary continuation and other severance benefits pursuant to Section
5 hereof is conditional upon Executive cooperating fully with the Company in
connection with any Change of Control or proposed Change of Control and all
matters relating to Executive's employment with the Company and assisting the
Company as requested in transitioning Executive's responsibilities to
Executive's replacement as well as upon Executive refraining from doing or
saying anything derogatory about the Company or its businesses or personnel.
8. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company and its businesses, which shall have been
obtained by Executive during Executive's employment by the Company and which
shall not be public knowledge (other than by acts by Executive in violation of
this Agreement). Whether before or after termination of the Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company, communicate or divulge any such secret or confidential
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
9. COVENANT NOT TO COMPETE.
(a) Non-Competition. Executive agrees that, from the date hereof to the
sooner to occur of (i) the end of the eighteen month period following the Date
of Termination or (ii) the end of the Protection Period (including any portion
thereof remaining after termination of Executive's employment or this
Agreement), Executive will not directly or indirectly be employed by, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or act as a consultant to, engage in, or be connected
in any manner with, any firm which is or may reasonably be found to be in
competition with the competitive access business of the Company and its
subsidiaries as such businesses may exist at any time from the date of this
Agreement through the Date of Termination, except that Executive may own not
more than one percent (1%) of any class of publicly traded securities of a
competitor.
(b) Non-Solicitation. Executive agrees that, during the Agreement Period
and the Protection Period (including any portion thereof remaining after
termination of Executive's employment or this Agreement), Executive will not:
(i) Solicit, raid, entice or induce any present or prospective
employee of the Company to be employed by any competitor of the Company;
(ii) Solicit business for any competitor from, or transact business
for any competitor with, any person, firm or corporation which was, at any time
during Executive's employment hereunder, a customer of the Company; or
(iii) Assist a competitor in taking such action.
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(c) Remedies. Executive agrees that any breach or threatened breach or
alleged breach or alleged threatened breach by Executive of any provision of
this Section 9 will entitle the Company, in addition to any other legal remedies
available to it, to apply to any court of competent jurisdiction to enjoin the
breach or threatened breach or alleged breach or alleged threatened breach, it
being acknowledged and agreed that any such material breach will cause
irreparable injury to the Company and that any damages will not provide adequate
remedies to the Company. The parties understand and intend that each restriction
agreed to by Executive will be construed as separable and divisible from every
other restriction, and that the unenforceability, in whole or in part, of any
restriction will not affect the enforceability of the remaining restrictions and
that one or more or all of such restrictions may be enforced in whole or in part
as the circumstances warrant and each restriction may be construed or altered by
a judicial authority in order to make such restriction enforceable. No waiver of
any one breach of the restrictions contained herein will be deemed a waiver of
any future breach. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
(d) If Executive's employment is terminated in accordance with paragraph
5(c), Executive shall have no obligation under paragraphs 9(a) and 9(b).
10. EXCLUSIVE REMEDY. Executive's rights to salary continuation and other
severance benefits pursuant to Section 5 hereof shall be Executive's sole and
exclusive remedy for any termination of Executive's employment by the Company
other than for Death, Disability or Cause or by Executive for Good Reason. The
payments, severance benefits and severance protections provided to Executive
pursuant to this Agreement are provided in lieu of any severance payments,
severance benefits and severance protections provided in any other plan or
policy of the Company, except as may be expressly provided in writing under the
terms of any plan or policy of the Company, or in a written agreement between
the Company and Executive entered into after the date of this Agreement. In no
event shall Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably
incur as a result of any contest by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement which is
ultimately decided in favor of Executive.
11. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Gross-up Payment. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to
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such taxes), including any Excise Tax, imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon such payment or distribution.
(b) Determination of Gross-Up. Subject to the provisions of paragraph (c)
of this Section 11, all determinations required to be made under this Section
11, including whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by an accounting firm satisfactory to the
Company and Executive ("Accounting Firm"). The Accounting Firm shall make such
determination and provide detailed supporting calculations to both the Company
and Executive within fifteen (15) business days after it is requested to do so.
The initial Gross-Up Payment, if any, as determined pursuant to this paragraph
(b) of this Section 11, shall be paid to Executive within five (5) business days
after the Company's receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that he has legal authority
satisfying the criteria set forth in Treasury Regulation Section 1.6661-3 or
similar successor provisions not to report any Excise Tax on his federal income
tax return. Any determination by the Accounting Firm shall be binding upon the
Company and Executive.
(c) Dispute of Tax Claim. Executive shall notify the Company in writing of
any proposed assessment or proposed adjustment by the Internal Revenue Service
("IRS") pursuant to an audit of Executive's federal income tax return or
otherwise, that, if successful, would require the payment by the Company of a
Gross-Up Payment (hereinafter referred to as a "Claim"). Such notice shall be
given as soon as practicable but no later than ten (10) business days after the
earlier of (i) the receipt by Executive of a written notice of proposed
adjustment from the IRS or (ii) the receipt by Executive of a statutory notice
of deficiency. Such notice by Executive to the Company shall include (i) notice
of the amount of the proposed assessment or proposed adjustment which relates to
the Claim and the taxable year or years in which the Claim arises, (ii) the
general nature of the Claim and (iii) all relevant written reports of the
examining agent relating to the Claim. Within thirty (30) days of (i) the
receipt by Executive of a final assessment or (ii) the execution by Executive
and the IRS of a closing agreement, with respect to any tax year of Executive in
which a Claim has been raised, pursuant to which Executive is required to pay
any amount with respect to the Claim, Executive shall provide the Company and
the Accounting Firm with a copy of such assessment or agreement, together with
supporting documents sufficient to determine the amount of such tax liability
that was attributable to the Claim. The Accounting Firm shall determine the
amount Gross-Up Payment under this Agreement due to such tax liability and the
Company will make such Gross-Up Payment to Executive within five (5) business
days after its receipt of such determination.
12. STATEMENT OF INTENTION. It is the intention of the parties hereto that,
prior to the Change of Control Date, this Agreement shall not create any rights
or obligations in Executive or the Company, or require any payments by the
Company to Executive, except as expressly provided herein.
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13. SUCCESSORS.
(a) Executive. This Agreement is personal to Executive and without the
prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall include any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
14. MISCELLANEOUS.
(a) Interpretation. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed to
Executive at Executive's address on the payroll records of the Company and to
the Company as follows:
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
Attention: Chairman
with a copy to:
Chairman of the Compensation Committee
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
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Any party may change the address to which notices are to be addressed by giving
the other party notice in the manner herein set forth. Notice and communications
shall be effective when actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) No Waiver. The failure of Executive or the Company to insist upon
strict compliance with any provision hereof shall not be deemed to be a waiver
of such provision or any other provision thereof.
(f) Entire Agreement; Amendments. This Agreement embodies the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements and
understandings relative to such subject matter. This Agreement may be amended or
superseded only by a written instrument executed by both Executive and the
Company. Any such written instrument must be approved by either the Company's
Board of Directors (the "Board") or the Compensation Committee of the Board (or
in the event of a Change of Control, such instrument may also be approved by the
Board of Directors or Compensation Committee of either (i) any successor to the
Company or (ii) any parent of the Company or its successor) prior to the time
that it is executed by the Company.
(g) At Will Employment. Executive and the Company acknowledge that the
employment of Executive by the Company is "at will" and may be terminated by
either Executive or the Company at any time.
(h) Dispute Resolution Procedures. If any question shall arise in regard to
the interpretation of any provision of this Agreement or as to the rights and
obligations of either of the parties hereunder, Executive and a designated
representative of the Company shall meet with each other to negotiate and
attempt to resolve such question in good faith. Executive and such
representative may, if they so desire, consult outside experts for assistance in
arriving at a resolution. In the event that a resolution is not achieved within
fifteen (15) days after their first meeting, then either party may submit the
question for final resolution by binding arbitration in accordance with the
rules and procedures of the American Arbitration Association applicable to
commercial transactions, and judgment upon any award thereon may be entered in
any court having jurisdiction thereof. The arbitration shall be held in St.
Louis, Missouri. In the event of any arbitration, Executive shall select one
arbitrator, the Company shall select one arbitrator and the two arbitrators so
selected shall select a third arbitrator, any two of which arbitrators together
shall make the necessary determinations. All out-of-pocket costs and expenses of
the parties in connection with such arbitration, including, without limitation,
the fees of the arbitrators and any administration fees and reasonable
attorney's fees and expenses, shall be borne by the parties in
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such proportions as the arbitrators shall decide that such expenses should, in
equity, be apportioned. This Section 14(h) shall not be applicable to matters
arising out of Executive's obligations pursuant to Section 9 hereof.
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement
as of the day and year first above written.
Executive:
D. Craig Young
-------------------------------------------
D. Craig Young
Company:
Brooks Fiber Properties, Inc.
By: G. Jackson Tankersley, Jr.
--------------------------------------
G. Jackson Tankersley, Jr.
Chairman of the Compensation Committee
13
EXHIBIT 10.3
CHANGE OF CONTROL SEVERANCE AGREEMENT
AGREEMENT by and between Brooks Fiber Properties, Inc., a Delaware
corporation (the "Company"), and David L. Solomon (the "Executive"), effective
as of the 8th day of April, 1997.
The Company wishes to assure that it will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company. The Board of Directors of the
Company (the "Board") believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company upon a Change of
Control, and to provide the Executive with compensation arrangements upon a
Change of Control which provide the Executive with individual financial security
and which are competitive with those of other corporations and, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) "Accrued Obligations" shall have the meaning set forth in Section 5
hereof.
(b) "Annual Bonus Target" shall be determined in good faith by the
Compensation Committee or other authorized person as the amount of bonus
Executive would receive for the year in which a Date of Termination occurs
assuming Executive had remained in the employ of the Company for the entire year
and assuming the Company's performance for the year was substantially consistent
with the Company's performance for the portion of the year ending with the Date
of Termination.
(c) The "Change of Control Date" shall be the first date during the
"Agreement Period" (as defined in Section1(c)) in which a Change of Control
occurs. Provided, however, that if the Executive's employment is terminated by
the Company prior to the date on which a Change of Control occurs, and the
Executive can reasonably demonstrate that such termination by the Company was in
contemplation of a Change of Control, then for all purposes of this Agreement
the "Change of Control Date" shall mean the date immediately prior to the date
of such termination.
(d) The "Agreement Period" is the period commencing on the date hereof and
ending on the earlier to occur of (i) the second anniversary of such date or
(ii) the day of the Executive's retirement after attaining age 65
("Retirement").
(e) "Change of Control" shall mean:
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(i) The acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange Act"), other than the Company or any of its wholly-owned
subsidiaries, or any employee benefit plan of the Company and/or any of its
wholly-owned subsidiaries, of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 40% or more of either the then
outstanding shares of the Company's Common Stock or the combined voting power of
the Company's then outstanding voting securities in a single transaction or
series of related transactions; or
(ii) Individuals who, as the date hereof, constitute the Board (as of
the date hereof the "Continuing Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved in advance by a vote of at least two-thirds
of the Continuing Directors (other than a nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
solicitation with respect to the election or removal of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a Continuing Director; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger, consolidation, liquidation or dissolution of the Company or of the sale
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company (excluding a transaction in which the
stockholders of the Company immediately prior to such transaction retain
beneficial ownership, directly or indirectly, of 60% or more of the outstanding
equity of the resulting or successor entity from such transaction); or
(iv) Any other event that two-thirds of the Continuing Directors in
its sole discretion shall determine constitutes a Change of Control.
(f) "Cause" for termination of Executive's employment shall be deemed to
exist if the Board of Directors of the Company should determine that Executive
has committed of any of the following: (i) fraud; (ii) misappropriation of
corporate property or funds; (iii) embezzlement; (iv) malfeasance in office; (v)
misfeasance in office which is willful or grossly negligent; or (vi) nonfeasance
in office which is willful or grossly negligent.
(g) "Company" as used herein includes Brooks Fiber Properties, Inc. and any
of its subsidiaries and divisions and, subject to Section 13(b) hereof, any
successor.
(h) "Good Reason" means (i) any purported termination by the Company of
Executive's employment for Cause which is finally determined by arbitration
under Section 14(h) of this Agreement not to be for Cause or (ii) continued
breach by the Company, after written notice and the inability to cure such
breach within thirty (30) days following receipt of such notice, of the
provisions of Section 3 or Section 13(b) of this Agreement.
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(i) "Termination Multiplier" shall be a fraction the numerator of which
shall be the number of days remaining in the Protection Period after the Date of
Termination and the denominator of which shall be 365.
2. PROTECTION PERIOD. The Company hereby agrees to provide to Executive the
benefits and protections described herein, in consideration of the services
provided to the Company by Executive after the date of this Agreement and of the
agreements of Executive herein, for the period commencing on the Change of
Control Date and ending on the earlier to occur of (a) the third anniversary of
the Change of Control Date or (b) the day of the Executive's Retirement.
3. TERMS OF EMPLOYMENT.
(a) Position and Duties. (i) During the Protection Period, (A) Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the Change
of Control Date and (B) except when traveling in the normal course of business,
Executive's services shall be performed at the location where Executive was
employed immediately preceding the Change of Control Date or any office or
location less than twenty-five (25) miles from such location; provided, however,
that Executive shall be deemed conclusively to have agreed to the terms of any
alternative job assignment unless, within thirty (30) days after being informed
by the Company of such alternative job assignment, Executive informs the Company
in writing that Executive deems such alternative job assignment to be
inconsistent with the requirements of clause (A) and/or clause (B) above and the
reasons therefor and the Company fails to rectify any such inconsistencies
within thirty (30) days of receiving such Notice. No change in status, office,
title or reporting requirements shall be deemed to have occurred by reason of a
change in the personnel holding any position in the Company or by reason of a
change which is inherent in the occurrence of the transaction constituting a
Change of Control.
(ii) During the Protection Period, and excluding any periods of
vacation and sick leave to which Executive is entitled, Executive agrees to
devote his full time and attention spent on business matters to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to Executive hereunder, to use Executive's reasonable
best efforts to perform faithfully and efficiently such responsibilities. During
the Protection Period it shall not be a violation of this Agreement for
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such activities do
not interfere with the performance of Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by Executive prior to the Change of Control Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Change of Control Date shall not thereafter be
deemed to interfere with the performance of Executive's responsibilities to the
Company.
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(b) Compensation.
(i) Base Salary. During the Protection Period, Executive shall receive
a base salary ("Base Salary") at a monthly rate at least equal to the highest
monthly base salary paid to Executive by the Company during the 90-day period
immediately preceding the Change of Control Date. During the Protection Period,
Executive's Base Salary shall be reviewed at least annually and may be increased
at any time and from time to time as the Company shall deem to be consistent
with increases in base salary awarded in the ordinary course of business to
other key executives of the Company. During the Protection Period, Executive's
Base Salary shall not be reduced after any such increase, except as part of, and
in an amount not greater proportionately than, any across-the-board cut in the
pay of other key executives of the Company.
(ii) Annual Bonus and Incentive Plans and Programs. In addition to
Base Salary, during the Protection Period, Executive shall be entitled to
receive an annual cash bonus and to participate in other incentive plans and
programs, which bonus and other incentive plans and programs shall, in the
aggregate, provide Executive with benefits and reward opportunities at least as
favorable as the benefits and reward opportunities provided by the Company for
Executive under such bonus and other incentive plans and programs in effect at
any time during the 90-day period immediately preceding the Change of Control
Date.
(iii) Savings, Retirement and Welfare Plans and Programs; Expenses and
Fringe Benefits. During the Protection Period, Executive and/or Executive's
family, as the case may be, shall be eligible for participation in and shall
receive all benefits under savings, retirement, welfare benefit (including
without limitation, medical, prescription, dental, disability, salary
continuance, executive life, group life, accidental death and travel accident
insurance) expense reimbursement and fringe benefit plans, programs and policies
which, in the aggregate, provide to Executive and/or Executive's family, as the
case may be, at least as much benefit as such plans, programs and policies
provided to Executive and/or Executive's family at any time during the 90-day
period immediately preceding the Change of Control Date.
(iv) Office and Support Staff. During the Protection Period, Executive
shall be entitled to an office and to secretarial and other assistance at least
comparable to those provided to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(v) Vacation. During the Protection Period, Executive shall be
entitled to paid vacation in accordance with the policies which are at least
comparable to those applicable to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(vi) Relocation. If Executive agrees to be based more than twenty-five
(25) miles from Executive's current location, Executive shall be entitled to
relocation benefits which are at least comparable to those enjoyed by Executive
at any time during the 90-day period immediately preceding the Change of Control
Date.
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4. TERMINATION.
(a) Termination. Executive's employment may be terminated at any time
during the Protection Period for any of the following reasons:
(i) Death. This Agreement shall terminate automatically upon
Executive's death.
(ii) Disability. The Company may terminate this Agreement, after
having established Executive's Disability (pursuant to the definition of
"Disability" set forth below), by giving to Executive written notice of its
intention to terminate Executive's employment. In such a case, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice (the "Disability Change of Control Date"), if, within the
30 days after such receipt, Executive shall not have returned to full-time
performance of Executive's duties. For purposes of this Agreement, "Disability"
means a condition which has lasted for at least 90 consecutive days in any 365
day period and is determined by a physician selected by the Company or its
insurers and acceptable to Executive or Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably) to prevent
Executive from discharging his responsibilities as an employee of the Company in
accordance with this Agreement.
(iii) Cause. The Company may terminate Executive's employment for
Cause.
(iv) Good Reason. Executive's employment may be terminated by
Executive for Good Reason.
(b) Notice of Termination. Any termination by the Company for Cause or by
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 14(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date.
(c) Date of Termination. If the Executive's employment is terminated by the
Company other than for Cause, Death or Disability or by Executive for Good
Reason, the Date of Termination shall be two (2) weeks after delivery of the
Notice of Termination. If Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be Executive's date of death
or Disability Change of Control Date, as the case may be. If Executive's
employment is terminated by the Company for Cause or by Executive for other than
Good Reason, the Date of Termination means the date of receipt of the Notice of
Termination or any later date that may be specified therein.
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5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's death, this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement, other than those obligations accrued or earned by Executive hereunder
as of the Date of Termination, including, for this purpose (i) Executive's full
Base Salary, plus a proportionate part of Executive's Annual Bonus target,
through the Date of Termination as in effect on the Date of Termination, (ii)
any accrued vacation pay not yet paid by the Company and (iii) any other amounts
or benefits owing to Executive under the then applicable benefit plans or
policies of the Company (such amounts and benefits specified in clauses (i),
(ii) and (iii) are hereinafter referred to as "Accrued Obligations"). The
Company shall pay the amounts specified in clauses (i) and (ii) promptly after
the Date of Termination (and in no case later than 30 days after the Date of
Termination) and shall pay the amounts and benefits in clause (iii) promptly
when due.
(b) Disability. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's Disability, this Agreement shall terminate
without further obligations to Executive, other than the Accrued Obligations, on
Executive's Disability Change of Control Date. Anything in this Agreement to the
contrary notwithstanding, Executive shall be entitled after the Disability
Change of Control Date to receive disability and other benefits at least equal
to those provided by the Company to disabled Executives and/or their families in
accordance with such plans, programs and policies relating to Disability, if
any, applicable to Executive at any time during the 90-day period immediately
preceding the Change of Control Date.
(c) Termination by the Company for Cause; Termination by Executive for
other than Good Reason. If, during the Protection Period, Executive's employment
shall be terminated by the Company for Cause or by Executive other than for Good
Reason, this Agreement shall terminate without further obligations to Executive,
other than for the payment of Base Salary through the Date of Termination.
(d) Termination by Executive for Good Reason; Termination by the Company
for Other Than for Cause, Death or Disability. If, during the Protection Period,
the Company shall terminate Executive's employment other than for Cause, death
or Disability, or the employment of Executive shall be terminated by Executive
for Good Reason, Executive shall be entitled to the following payments and
benefits determined in full compliance with the obligations of the Company
pursuant to this Agreement; provided that in the case of the payments and
benefits specified in subparagraphs (i)B, (i)C, (ii) and (iii) Executive shall
have executed and delivered to the Company an effective release of claims in a
form acceptable to the Company:
(i) the Company shall pay to Executive the aggregate of the following
amounts which shall be paid in cash on the first normal salary payment date
occurring after the Date of Termination with respect to amounts payable pursuant
to subparagraph A and D and the fifth day following the expiration of any period
during which Executive may revoke the release
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referred to above without any such revocation with respect to amounts payable
pursuant to subparagraphs B and C:
A. to the extent not theretofore paid, Executive's full Base
Salary, plus a proportionate part of Executive's Annual Bonus Target,
through the Date of Termination, as in effect on the Date of Termination;
and
B. the Annual Bonus Target applicable to Executive immediately
preceding the Date of Termination multiplied by the Termination Multiplier;
and
C. Executive's annual Base Salary, as in effect on the Date of
Termination multiplied by the Termination Multiplier; and
D. all other amounts accrued or earned by Executive through the
Date of Termination and amounts otherwise owing under the then existing
plans and policies at the Company, including all amounts of previously
deferred compensation; and
(ii) all of Executive's stock options and other stock awards will be
fully vested.
(iii) for the period from the Date of Termination through the end of
the Protection Period the Company shall continue group health benefits as to
which Executive or Executive's qualified beneficiaries would be entitled to
continuation coverage under the provisions of COBRA to Executive and/or
Executive's family at least equal to those which would have been provided to
them in accordance with the health and dental plans, programs and policies
provided by the Company to employees and/or their families if Executive's
employment had not been terminated, including health insurance and dental
insurance, if and as in effect at any time during the 90-day period immediately
preceding the Change of Control Date or, if more favorable to Executive, as in
effect at any time thereafter with respect to other key executives and their
families; provided, however, that such benefit continuation shall cease when and
to the extent Executive becomes eligible for coverage through a new employer.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall guarantee,
entitle, prevent or limit Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights that Executive may have
under any stock option or other agreements with the Company. Amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan or program of the Company at or subsequent to the Date of Termination shall
be payable in accordance with such plan or program.
7. COOPERATION. Notwithstanding anything to the contrary contained herein,
payment of salary continuation and other severance benefits pursuant to Section
5 hereof is conditional upon Executive cooperating fully with the Company in
connection with any Change
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of Control or proposed Change of Control and all matters relating to Executive's
employment with the Company and assisting the Company as requested in
transitioning Executive's responsibilities to Executive's replacement as well as
upon Executive refraining from doing or saying anything derogatory about the
Company or its businesses or personnel.
8. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company and its businesses, which shall have been
obtained by Executive during Executive's employment by the Company and which
shall not be public knowledge (other than by acts by Executive in violation of
this Agreement). Whether before or after termination of the Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company, communicate or divulge any such secret or confidential
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
9. COVENANT NOT TO COMPETE.
(a) Non-Competition. Executive agrees that, from the date hereof to the
sooner to occur of (i) the end of the eighteen month period following the Date
of Termination or (ii) the end of the Protection Period (including any portion
thereof remaining after termination of Executive's employment or this
Agreement), Executive will not directly or indirectly be employed by, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or act as a consultant to, engage in, or be connected
in any manner with, any firm which is or may reasonably be found to be in
competition with the telecommunications businesses of the Company and its
subsidiaries as such businesses may exist at any time from the date of this
Agreement through the Date of Termination, except that Executive may own not
more than one percent (1%) of any class of publicly traded securities of a
competitor.
(b) Non-Solicitation. Executive agrees that, during the Agreement Period
and the Protection Period (including any portion thereof remaining after
termination of Executive's employment or this Agreement), Executive will not:
(i) Solicit, raid, entice or induce any present or prospective
employee of the Company to be employed by any competitor of the Company;
(ii) Solicit business for any competitor from, or transact business
for any competitor with, any person, firm or corporation which was, at any time
during Executive's employment hereunder, a customer of the Company; or
(iii) Assist a competitor in taking such action.
(c) Remedies. Executive agrees that any breach or threatened breach or
alleged breach or alleged threatened breach by Executive of any provision of
this Section 9 will entitle the Company, in addition to any other legal remedies
available to it, to apply to any court of competent jurisdiction to enjoin the
breach or threatened breach or alleged breach or alleged
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threatened breach, it being acknowledged and agreed that any such material
breach will cause irreparable injury to the Company and that any damages will
not provide adequate remedies to the Company. The parties understand and intend
that each restriction agreed to by Executive will be construed as separable and
divisible from every other restriction, and that the unenforceability, in whole
or in part, of any restriction will not affect the enforceability of the
remaining restrictions and that one or more or all of such restrictions may be
enforced in whole or in part as the circumstances warrant and each restriction
may be construed or altered by a judicial authority in order to make such
restriction enforceable. No waiver of any one breach of the restrictions
contained herein will be deemed a waiver of any future breach. In no event shall
an asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to Executive under this
Agreement.
(d) If Executive's employment is terminated in accordance with paragraph
5(c), Executive shall have no obligation under paragraphs 9(a) and 9(b).
10. EXCLUSIVE REMEDY. Executive's rights to salary continuation and other
severance benefits pursuant to Section 5 hereof shall be Executive's sole and
exclusive remedy for any termination of Executive's employment by the Company
other than for Death, Disability or Cause or by Executive for Good Reason. The
payments, severance benefits and severance protections provided to Executive
pursuant to this Agreement are provided in lieu of any severance payments,
severance benefits and severance protections provided in any other plan or
policy of the Company, except as may be expressly provided in writing under the
terms of any plan or policy of the Company, or in a written agreement between
the Company and Executive entered into after the date of this Agreement. In no
event shall Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably
incur as a result of any contest by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement which is
ultimately decided in favor of Executive.
11. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Gross-up Payment. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon such
payment or distribution.
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(b) Determination of Gross-Up. Subject to the provisions of paragraph (c)
of this Section 11, all determinations required to be made under this Section
11, including whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by an accounting firm satisfactory to the
Company and Executive ("Accounting Firm"). The Accounting Firm shall make such
determination and provide detailed supporting calculations to both the Company
and Executive within fifteen (15) business days after it is requested to do so.
The initial Gross-Up Payment, if any, as determined pursuant to this paragraph
(b) of this Section 11, shall be paid to Executive within five (5) business days
after the Company's receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that he has legal authority
satisfying the criteria set forth in Treasury Regulation Section 1.6661-3 or
similar successor provisions not to report any Excise Tax on his federal income
tax return. Any determination by the Accounting Firm shall be binding upon the
Company and Executive.
(c) Dispute of Tax Claim. Executive shall notify the Company in writing of
any proposed assessment or proposed adjustment by the Internal Revenue Service
("IRS") pursuant to an audit of Executive's federal income tax return or
otherwise, that, if successful, would require the payment by the Company of a
Gross-Up Payment (hereinafter referred to as a "Claim"). Such notice shall be
given as soon as practicable but no later than ten (10) business days after the
earlier of (i) the receipt by Executive of a written notice of proposed
adjustment from the IRS or (ii) the receipt by Executive of a statutory notice
of deficiency. Such notice by Executive to the Company shall include (i) notice
of the amount of the proposed assessment or proposed adjustment which relates to
the Claim and the taxable year or years in which the Claim arises, (ii) the
general nature of the Claim and (iii) all relevant written reports of the
examining agent relating to the Claim. Within thirty (30) days of (i) the
receipt by Executive of a final assessment or (ii) the execution by Executive
and the IRS of a closing agreement, with respect to any tax year of Executive in
which a Claim has been raised, pursuant to which Executive is required to pay
any amount with respect to the Claim, Executive shall provide the Company and
the Accounting Firm with a copy of such assessment or agreement, together with
supporting documents sufficient to determine the amount of such tax liability
that was attributable to the Claim. The Accounting Firm shall determine the
amount Gross-Up Payment under this Agreement due to such tax liability and the
Company will make such Gross-Up Payment to Executive within five (5) business
days after its receipt of such determination.
12. STATEMENT OF INTENTION. It is the intention of the parties hereto that,
prior to the Change of Control Date, this Agreement shall not create any rights
or obligations in Executive or the Company, or require any payments by the
Company to Executive, except as expressly provided herein.
13. SUCCESSORS.
(a) Executive. This Agreement is personal to Executive and without the
prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
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(b) The Company. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall include any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
14. MISCELLANEOUS.
(a) Interpretation. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed to
Executive at Executive's address on the payroll records of the Company and to
the Company as follows:
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
Attention: Chairman
with a copy to:
Chairman of the Compensation Committee
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
Any party may change the address to which notices are to be addressed by giving
the other party notice in the manner herein set forth. Notice and communications
shall be effective when actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
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(d) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) No Waiver. The failure of Executive or the Company to insist upon
strict compliance with any provision hereof shall not be deemed to be a waiver
of such provision or any other provision thereof.
(f) Entire Agreement; Amendments. This Agreement embodies the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supercedes all prior and contemporaneous agreements and
understandings relative to such subject matter. This Agreement may be amended or
superceded only by a written instrument executed by both Executive and the
Company. Any such written instrument must be approved by either the Company's
Board of Directors (the "Board") or the Compensation Committee of the Board (or
in the event of a Change of Control, such instrument may also be approved by the
Board of Directors or Compensation Committee of either (i) any successor to the
Company or (ii) any parent of the Company or its successor) prior to the time
that it is executed by the Company.
(g) At Will Employment. Executive and the Company acknowledge that the
employment of Executive by the Company is "at will" and may be terminated by
either Executive or the Company at any time.
(h) Dispute Resolution Procedures. If any question shall arise in regard to
the interpretation of any provision of this Agreement or as to the rights and
obligations of either of the parties hereunder, Executive and a designated
representative of the Company shall meet with each other to negotiate and
attempt to resolve such question in good faith. Executive and such
representative may, if they so desire, consult outside experts for assistance in
arriving at a resolution. In the event that a resolution is not achieved within
fifteen (15) days after their first meeting, then either party may submit the
question for final resolution by binding arbitration in accordance with the
rules and procedures of the American Arbitration Association applicable to
commercial transactions, and judgment upon any award thereon may be entered in
any court having jurisdiction thereof. The arbitration shall be held in St.
Louis, Missouri. In the event of any arbitration, Executive shall select one
arbitrator, the Company shall select one arbitrator and the two arbitrators so
selected shall select a third arbitrator, any two of which arbitrators together
shall make the necessary determinations. All out-of-pocket costs and expenses of
the parties in connection with such arbitration, including, without limitation,
the fees of the arbitrators and any administration fees and reasonable
attorney's fees and expenses, shall be borne by the parties in such proportions
as the arbitrators shall decide that such expenses should, in equity, be
apportioned. This Section 14(h) shall not be applicable to matters arising out
of Executive's obligations pursuant to Section 9 hereof.
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IN WITNESS WHEREOF, Executive and the Company have executed this Agreement
as of the day and year first above written.
Executive:
David L. Solomon
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David L. Solomon
Company:
Brooks Fiber Properties, Inc.
By: G. Jackson Tankersley, Jr.
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G. Jackson Tankersley, Jr.
Chairman of the Compensation Committee
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EXHIBIT 10.4
CHANGE OF CONTROL SEVERANCE AGREEMENT
AGREEMENT by and between Brooks Fiber Properties, Inc., a Delaware
corporation (the "Company"), and John C. Shapleigh (the "Executive"), effective
as of the 8th day of April, 1997.
The Company wishes to assure that it will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company. The Board of Directors of the
Company (the "Board") believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company upon a Change of
Control, and to provide the Executive with compensation arrangements upon a
Change of Control which provide the Executive with individual financial security
and which are competitive with those of other corporations and, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) "Accrued Obligations" shall have the meaning set forth in Section 5
hereof.
(b) "Annual Bonus Target" shall be the specific amount determined at the
beginning of the year under the Company's bonus program by the Compensation
Committee or other authorized person as the amount of bonus Executive would
receive for the year in which a Date of Termination occurs assuming 100%
achievement of agreed-upon performance targets.
(c) The "Change of Control Date" shall be the first date during the
"Agreement Period" (as defined in Section1(c)) in which a Change of Control
occurs. Provided, however, that if the Executive's employment is terminated by
the Company prior to the date on which a Change of Control occurs, and the
Executive can reasonably demonstrate that such termination by the Company was in
contemplation of a Change of Control, then for all purposes of this Agreement
the "Change of Control Date" shall mean the date immediately prior to the date
of such termination.
(d) The "Agreement Period" is the period commencing on the date hereof and
ending on the earlier to occur of (i) the second anniversary of such date or
(ii) the day of the Executive's retirement after attaining age 65
("Retirement").
(e) "Change of Control" shall mean:
(i) The acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange
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Act"), other than the Company or any of its wholly-owned subsidiaries, or any
employee benefit plan of the Company and/or any of its wholly-owned
subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 40% or more of either the then
outstanding shares of the Company's Common Stock or the combined voting power of
the Company's then outstanding voting securities in a single transaction or
series of related transactions; or
(ii) Individuals who, as the date hereof, constitute the Board (as of
the date hereof the "Continuing Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved in advance by a vote of at least two-thirds
of the Continuing Directors (other than a nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
solicitation with respect to the election or removal of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a Continuing Director; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger, consolidation, liquidation or dissolution of the Company or of the sale
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company (excluding a transaction in which the
stockholders of the Company immediately prior to such transaction retain
beneficial ownership, directly or indirectly, of 60% or more of the outstanding
equity of the resulting or successor entity from such transaction); or
(iv) Any other event that two-thirds of the Continuing Directors in
its sole discretion shall determine constitutes a Change of Control.
(f) "Cause" for termination of Executive's employment shall be deemed to
exist if the Board of Directors of the Company should determine that Executive
has committed of any of the following: (i) fraud; (ii) misappropriation of
corporate property or funds; (iii) embezzlement; (iv) malfeasance in office; (v)
misfeasance in office which is willful or grossly negligent; or (vi) nonfeasance
in office which is willful or grossly negligent.
(g) "Company" as used herein includes Brooks Fiber Properties, Inc. and any
of its subsidiaries and divisions and, subject to Section 13(b) hereof, any
successor.
(h) "Good Reason" means (i) any purported termination by the Company of
Executive's employment for Cause which is finally determined by arbitration
under Section 14(h) of this Agreement not to be for Cause or (ii) continued
breach by the Company, after written notice and the inability to cure such
breach within thirty (30) days following receipt of such notice, of the
provisions of Section 3 or Section 13(b) of this Agreement.
(i) "Termination Multiplier" shall be two if the Date of Termination is
within the first one year following a Change of Control, and if thereafter it
shall be a fraction the numerator of which shall be the number of days remaining
in the Protection Period after the Date of Termination and the denominator of
which shall be 365.
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2. PROTECTION PERIOD. The Company hereby agrees to provide to Executive the
benefits and protections described herein, in consideration of the services
provided to the Company by Executive after the date of this Agreement and of the
agreements of Executive herein, for the period commencing on the Change of
Control Date and ending on the earlier to occur of (a) the second anniversary of
the Change of Control Date or (b) the day of the Executive's Retirement.
3. TERMS OF EMPLOYMENT.
(a) Position and Duties. (i) During the Protection Period, (A) Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the Change
of Control Date and (B) except when traveling in the normal course of business,
Executive's services shall be performed at the location where Executive was
employed immediately preceding the Change of Control Date or any office or
location less than twenty-five (25) miles from such location; provided, however,
that Executive shall be deemed conclusively to have agreed to the terms of any
alternative job assignment unless, within thirty (30) days after being informed
by the Company of such alternative job assignment, Executive informs the Company
in writing that Executive deems such alternative job assignment to be
inconsistent with the requirements of the clause above and the reasons therefor
and the Company fails to rectify any such inconsistencies within thirty (30)
days of receiving such Notice. No change in status, office, title or reporting
requirements shall be deemed to have occurred by reason of a change in the
personnel holding any position in the Company or by reason of a change which is
inherent in the occurrence of the transaction constituting a Change of Control.
(ii) During the Protection Period, and excluding any periods of
vacation and sick leave to which Executive is entitled, Executive agrees to
devote his full time and attention spent on business matters to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to Executive hereunder, to use Executive's reasonable
best efforts to perform faithfully and efficiently such responsibilities. During
the Protection Period it shall not be a violation of this Agreement for
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions, (C) manage personal investments and (D) perform such other
activities as the Board of Directors may approve, so long as such activities do
not interfere with the performance of Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by Executive prior to the Change of Control Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Change of Control Date shall not thereafter be
deemed to interfere with the performance of Executive's responsibilities to the
Company.
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(b) Compensation.
(i) Base Salary. During the Protection Period, Executive shall receive
a base salary ("Base Salary") at a monthly rate at least equal to the highest
monthly base salary paid to Executive by the Company during the 90-day period
immediately preceding the Change of Control Date. During the Protection Period,
Executive's Base Salary shall be reviewed at least annually and may be increased
at any time and from time to time as the Company shall deem to be consistent
with increases in base salary awarded in the ordinary course of business to
other key executives of the Company. During the Protection Period, Executive's
Base Salary shall not be reduced after any such increase, except as part of, and
in an amount not greater proportionately than, any across-the-board cut in the
pay of other key executives of the Company.
(ii) Annual Bonus and Incentive Plans and Programs. In addition to
Base Salary, during the Protection Period, Executive shall be entitled to
receive an annual cash bonus and to participate in other incentive plans and
programs, which bonus and other incentive plans and programs shall, in the
aggregate, provide Executive with benefits and reward opportunities at least as
favorable as the benefits and reward opportunities provided by the Company for
Executive under such bonus and other incentive plans and programs in effect at
any time during the 90-day period immediately preceding the Change of Control
Date.
(iii) Savings, Retirement and Welfare Plans and Programs; Expenses and
Fringe Benefits. During the Protection Period, Executive and/or Executive's
family, as the case may be, shall be eligible for participation in and shall
receive all benefits under savings, retirement, welfare benefit (including
without limitation, medical, prescription, dental, disability, salary
continuance, executive life, group life, accidental death and travel accident
insurance) expense reimbursement and fringe benefit plans, programs and policies
which, in the aggregate, provide to Executive and/or Executive's family, as the
case may be, at least as much benefit as such plans, programs and policies
provided to Executive and/or Executive's family at any time during the 90-day
period immediately preceding the Change of Control Date.
(iv) Office and Support Staff. During the Protection Period, Executive
shall be entitled to an office and to secretarial and other assistance at least
comparable to those provided to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(v) Vacation. During the Protection Period, Executive shall be
entitled to paid vacation in accordance with the policies which are at least
comparable to those applicable to Executive at any time during the 90-day period
immediately preceding the Change of Control Date.
(vi) Relocation. If Executive agrees to be based more than twenty-five
(25) miles from Executive's current location, Executive shall be entitled to
relocation benefits which are at least comparable to those enjoyed by Executive
at any time during the 90-day period immediately preceding the Change of Control
Date.
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4. TERMINATION.
(a) Termination. Executive's employment may be terminated at any time
during the Protection Period for any of the following reasons:
(i) Death. This Agreement shall terminate automatically upon
Executive's death.
(ii) Disability. The Company may terminate this Agreement, after
having established Executive's Disability (pursuant to the definition of
"Disability" set forth below), by giving to Executive written notice of its
intention to terminate Executive's employment. In such a case, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice (the "Disability Change of Control Date"), if, within the
30 days after such receipt, Executive shall not have returned to full-time
performance of Executive's duties. For purposes of this Agreement, "Disability"
means a condition which has lasted for at least 90 consecutive days in any 365
day period and is determined by a physician selected by the Company or its
insurers and acceptable to Executive or Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably) to prevent
Executive from discharging his responsibilities as an employee of the Company in
accordance with this Agreement.
(iii) Cause. The Company may terminate Executive's employment for
Cause.
(iv) Good Reason. Executive's employment may be terminated by
Executive for Good Reason.
(b) Notice of Termination. Any termination by the Company for Cause or by
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 14(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date.
(c) Date of Termination. If the Executive's employment is terminated by the
Company other than for Cause, Death or Disability or by Executive for Good
Reason, the Date of Termination shall be two (2) weeks after delivery of the
Notice of Termination. If Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be Executive's date of death
or Disability Change of Control Date, as the case may be. If Executive's
employment is terminated by the Company for Cause or by Executive for other than
Good Reason, the Date of Termination means the date of receipt of the Notice of
Termination or any later date that may be specified therein.
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5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's death, this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement, other than those obligations accrued or earned by Executive hereunder
as of the Date of Termination, including, for this purpose (i) Executive's full
Base Salary, plus a proportionate part of Executive's Annual Bonus target,
through the Date of Termination as in effect on the Date of Termination, (ii)
any accrued vacation pay not yet paid by the Company and (iii) any other amounts
or benefits owing to Executive under the then applicable benefit plans or
policies of the Company (such amounts and benefits specified in clauses (i),
(ii) and (iii) are hereinafter referred to as "Accrued Obligations"). The
Company shall pay the amounts specified in clauses (i) and (ii) promptly after
the Date of Termination (and in no case later than 30 days after the Date of
Termination) and shall pay the amounts and benefits in clause (iii) promptly
when due.
(b) Disability. If, during the Protection Period, Executive's employment is
terminated by reason of Executive's Disability, this Agreement shall terminate
without further obligations to Executive, other than the Accrued Obligations, on
Executive's Disability Change of Control Date. Anything in this Agreement to the
contrary notwithstanding, Executive shall be entitled after the Disability
Change of Control Date to receive disability and other benefits at least equal
to those provided by the Company to disabled Executives and/or their families in
accordance with such plans, programs and policies relating to Disability, if
any, applicable to Executive at any time during the 90-day period immediately
preceding the Change of Control Date.
(c) Termination by the Company for Cause; Termination by Executive for
other than Good Reason. If, during the Protection Period, Executive's employment
shall be terminated by the Company for Cause or by Executive other than for Good
Reason, this Agreement shall terminate without further obligations to Executive,
other than for the payment of Base Salary through the Date of Termination.
(d) Termination by Executive for Good Reason; Termination by the Company
for Other Than for Cause, Death or Disability. If, during the Protection Period,
the Company shall terminate Executive's employment other than for Cause, death
or Disability, or the employment of Executive shall be terminated by Executive
for Good Reason, Executive shall be entitled to the following payments and
benefits determined in full compliance with the obligations of the Company
pursuant to this Agreement; provided that in the case of the payments and
benefits specified in subparagraphs (i)B, (i)C, (ii) and (iii) Executive shall
have executed and delivered to the Company an effective release of claims in the
form attached hereto as Exhibit A with such changes thereto which, in the
opinion of counsel for the Company, are required to provide the Company with
protection from any future claims by Executive arising out of his employment or
the cessation thereof:
(i) the Company shall pay to Executive the amounts payable pursuant to
subparagraphs A and D on the first normal salary payment date occurring after
the Date of
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Termination and shall pay to Executive the amounts payable pursuant to
subparagraphs B and C on the fifth day following the expiration of any
revocation period (without revocation occurring) of the release referred to
above:
A. to the extent not theretofore paid, Executive's full Base
Salary, plus a proportionate part of Executive's Annual Bonus Target,
through the Date of Termination, as in effect on the Date of Termination;
and
B. the Annual Bonus Target applicable to Executive immediately
preceding the Date of Termination multiplied by the Termination Multiplier;
and
C. Executive's annual Base Salary, as in effect on the Date of
Termination multiplied by the Termination Multiplier; and
D. all other amounts accrued or earned by Executive through the
Date of Termination and amounts otherwise owing under the then existing
plans and policies at the Company, including all amounts of previously
deferred compensation; and
(ii) all of Executive's stock options and other stock awards will be
fully vested.
(iii) for the period from the Date of Termination through the second
anniversary of the Date of Termination if such occurred within the first year
following the Change of Control or, if the Date of Termination is thereafter,
through the end of the Protection Period, the Company shall continue group
health benefits as to which Executive or Executive's qualified beneficiaries
would be entitled to continuation coverage under the provisions of COBRA to
Executive and/or Executive's family at least equal to those which would have
been provided to them in accordance with the health and dental plans, programs
and policies provided by the Company to employees and/or their families if
Executive's employment had not been terminated, including health insurance and
dental insurance, if and as in effect at any time during the 90-day period
immediately preceding the Change of Control Date or, if more favorable to
Executive, as in effect at any time thereafter with respect to other key
executives and their families, or after the Company may no longer cover
Executive and/or Executive's family under its group health plan, through a
comparable health plan generally available to individual subscribers; provided,
however, that such benefit continuation shall cease when and to the extent
Executive becomes eligible for coverage through a new employer.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
guarantee, entitle, prevent or limit Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which Executive may
qualify, nor shall anything herein limit or otherwise affect such rights that
Executive may have under any stock option or other agreements with the Company.
Amounts which are vested benefits or which Executive is otherwise entitled to
receive under any
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plan or program of the Company at or subsequent to the Date of Termination shall
be payable in accordance with such plan or program.
7. COOPERATION. Notwithstanding anything to the contrary contained herein,
payment of salary continuation and other severance benefits pursuant to Section
5 hereof is conditional upon Executive cooperating fully with the Company in
connection with any Change of Control or proposed Change of Control and all
matters relating to Executive's employment with the Company and assisting the
Company as requested in transitioning Executive's responsibilities to
Executive's replacement as well as upon Executive refraining from doing or
saying anything derogatory about the Company or its businesses or personnel.
8. CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company and its businesses, which shall have been
obtained by Executive during Executive's employment by the Company and which
shall not be public knowledge (other than by acts by Executive in violation of
this Agreement). Whether before or after termination of the Executive's
employment with the Company, Executive shall not, without the prior written
consent of the Company, communicate or divulge any such secret or confidential
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
9. COVENANT NOT TO COMPETE.
(a) Non-Competition. Executive agrees that, from the date hereof to the
sooner to occur of (i) the first anniversary of the Date of Termination or (ii)
the end of the Protection Period (including any portion thereof remaining after
termination of Executive's employment or this Agreement), Executive will not
directly or indirectly be employed by, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or act as a
consultant to, engage in, or be connected in any manner with, any firm which is
or may reasonably be found to be in competition with the competitive access
business of the Company and its subsidiaries as such business may exist at any
time from the date of this Agreement through the Date of Termination, except
that Executive may own not more than five percent (5%) of any class of publicly
traded securities of a competitor.
(b) Non-Solicitation. Executive agrees that, during the Agreement Period
and the Protection Period (including any portion thereof remaining after
termination of Executive's employment or this Agreement), Executive will not:
(i) Solicit, raid, entice or induce any present or prospective
employee of the Company to be employed by any competitor of the Company;
(ii) Solicit business for any competitor from, or transact business
for any competitor with, any person, firm or corporation which was, at any time
during Executive's employment hereunder, a customer of the Company; or
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(iii) Assist a competitor in taking such action.
(c) Remedies. Executive agrees that any breach or threatened breach or
alleged breach or alleged threatened breach by Executive of any provision of
this Section 9 will entitle the Company, in addition to any other legal remedies
available to it, to apply to any court of competent jurisdiction to enjoin the
breach or threatened breach or alleged breach or alleged threatened breach, it
being acknowledged and agreed that any such material breach will cause
irreparable injury to the Company and that any damages will not provide adequate
remedies to the Company. The parties understand and intend that each restriction
agreed to by Executive will be construed as separable and divisible from every
other restriction, and that the unenforceability, in whole or in part, of any
restriction will not affect the enforceability of the remaining restrictions and
that one or more or all of such restrictions may be enforced in whole or in part
as the circumstances warrant and each restriction may be construed or altered by
a judicial authority in order to make such restriction enforceable. No waiver of
any one breach of the restrictions contained herein will be deemed a waiver of
any future breach. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
(d) If Executive's employment is terminated in accordance with paragraph
5(c), Executive shall have no obligation under paragraphs 9(a) and 9(b).
10. EXCLUSIVE REMEDY. Executive's rights to salary continuation and other
severance benefits pursuant to Section 5 hereof shall be Executive's sole and
exclusive remedy for any termination of Executive's employment by the Company
other than for Death, Disability or Cause or by Executive for Good Reason. The
payments, severance benefits and severance protections provided to Executive
pursuant to this Agreement are provided in lieu of any severance payments,
severance benefits and severance protections provided in any other plan or
policy of the Company, except as may be expressly provided in writing under the
terms of any plan or policy of the Company, or in a written agreement between
the Company and Executive entered into after the date of this Agreement. In no
event shall Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably
incur as a result of any contest by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement which is
ultimately decided in favor of Executive.
11. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
(a) For purposes of this Section 11,
(i) A "Payment" shall mean any payment or distribution in the nature
of compensation to or for the benefit of Executive, whether paid or payable
pursuant to this Agreement or otherwise;
(ii) "Agreement Payment" shall mean a Payment paid or payable pursuant
to this Agreement (disregarding this Section 11);
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(iii) "Net After Tax Receipt" shall mean the Present Value of a
Payment net of all taxes imposed on Executive with respect thereto under
Sections 1 and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), determined by applying the highest marginal rate under Section 1 of the
Code which applied to the Executive's taxable income for the immediately
preceding taxable year;
(iv) "Present Value" shall mean such value determined in accordance
with Section 280G(d)(4) of the Code; and
(v) "Reduced Amount" shall mean the smallest aggregate amount of
Payments which (a) is less than the sum of all Payments and (b) results in
aggregate Net After Tax Receipts which are equal to or greater than the Net
After Tax Receipts which would result if the aggregate Payments were any other
amount less than the sum of all Payments.
(b) Anything in this Agreement to the contrary notwithstanding, in the
event the Company's independent auditors (the "Accounting Firm") shall determine
that receipt of all Payments would subject Executive to tax under Section 4999
of the Code, it shall determine whether some amount of Payments would meet the
definition of a Reduced Amount. If the Accounting Firm determines that there is
a Reduced Amount, the aggregate Agreement Payments shall be reduced to such
Reduced Amount; provided, however, that if the Reduced Amount exceeds the
aggregate Agreement Payments, the aggregate Payments shall, after the reduction
of all Agreement Payments, be reduced (but not below zero) in the amount of such
excess.
(c) If the Accounting Firm determines that aggregate Agreement Payments or
Payments, as the case may be, should be reduced to the Reduced Amount, the
Company shall promptly give Executive notice to that effect and a copy of the
detailed calculation thereof, and the Executive may then elect, in Executive's
sole discretion, which and how much of the Payments shall be eliminated or
reduced (as long as after such election the present value of the aggregate
Payments equals the Reduced Amount), and shall advise the Company in writing of
Executive's election within ten days of Executive's receipt of notice. If no
such election is made by Executive within such ten-day period, the Company may
elect which of the Agreement Payments or Payments, as the case may be, shall be
eliminated or reduced (as long as after such election the present value of the
aggregate Agreement Payments or Payments, as the case may be, equals the Reduced
Amount), and shall notify the Executive promptly of such election. All
determinations made by the Accounting Firm under this Section shall be binding
upon the Company and Executive and shall be made within 60 days of a termination
of employment of the Executive. As promptly as practicable following such
determination, the Company shall pay to or distribute for the benefit of
Executive such Payments as are then due to Executive under this Agreement and
shall promptly pay to or distribute for the benefit of Executive in the future
such Payments as become due to Executive under this Agreement.
(d) While it is the intention of the Company and the Executive to reduce
the amounts payable or distributable to Executive hereunder only if the
aggregate Net After Tax
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Receipts to Executive would thereby be increased, as a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that amounts will
have been paid or distributed by the Company to or for the benefit of Executive
pursuant to this Agreement which should not have been so paid or distributed
("Overpayment") or that additional amounts which will have not been paid or
distributed by the Company to or for the benefit of Executive pursuant to this
Agreement could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Company or Executive which the Accounting
Firm believes has a high probability of success or controlling precedent or
other substantial authority, determines that an Overpayment has been made, any
such Overpayment paid or distributed by the Company to or for the benefit of
Executive shall be treated for all purposes as a loan ab initio to Executive
which Executive shall repay to the Company together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made and no
amount shall be payable by Executive to the Company if and to the extent such
deemed loan and payment would not either reduce the amount on which the
Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code.
12. STATEMENT OF INTENTION. It is the intention of the parties hereto that,
prior to the Change of Control Date, this Agreement shall not create any rights
or obligations in Executive or the Company, or require any payments by the
Company to Executive, except as expressly provided herein.
13. SUCCESSORS.
(a) Executive. This Agreement is personal to Executive and without the
prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall include any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
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14. MISCELLANEOUS.
(a) Interpretation. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed to
Executive at Executive's address on the payroll records of the Company and to
the Company as follows:
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
Attention: Chairman
with a copy to:
Chairman of the Compensation Committee
Brooks Fiber Properties, Inc.
425 Woods Mill Road South
Suite 300
Town & Country, Missouri 63017
Any party may change the address to which notices are to be addressed by giving
the other party notice in the manner herein set forth. Notice and communications
shall be effective when actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) No Waiver. The failure of Executive or the Company to insist upon
strict compliance with any provision hereof shall not be deemed to be a waiver
of such provision or any other provision thereof.
(f) Entire Agreement; Amendments. This Agreement embodies the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and
12
<PAGE>
supercedes all prior and contemporaneous agreements and understandings relative
to such subject matter. This Agreement may be amended or superceded only by a
written instrument executed by both Executive and the Company. Any such written
instrument must be approved by either the Company's Board of Directors (the
"Board") or the Compensation Committee of the Board (or in the event of a Change
of Control, such instrument may also be approved by the Board of Directors or
Compensation Committee of either (i) any successor to the Company or (ii) any
parent of the Company or its successor) prior to the time that it is executed by
the Company.
(g) At Will Employment. Executive and the Company acknowledge that the
employment of Executive by the Company is "at will" and may be terminated by
either Executive or the Company at any time.
(h) Dispute Resolution Procedures. If any question shall arise in regard to
the interpretation of any provision of this Agreement or as to the rights and
obligations of either of the parties hereunder, Executive and a designated
representative of the Company shall meet with each other to negotiate and
attempt to resolve such question in good faith. Executive and such
representative may, if they so desire, consult outside experts for assistance in
arriving at a resolution. In the event that a resolution is not achieved within
fifteen (15) days after their first meeting, then either party may submit the
question for final resolution by binding arbitration in accordance with the
rules and procedures of the American Arbitration Association applicable to
commercial transactions, and judgment upon any award thereon may be entered in
any court having jurisdiction thereof. The arbitration shall be held in St.
Louis, Missouri. In the event of any arbitration, Executive shall select one
arbitrator, the Company shall select one arbitrator and the two arbitrators so
selected shall select a third arbitrator, any two of which arbitrators together
shall make the necessary determinations. All out-of-pocket costs and expenses of
the parties in connection with such arbitration, including, without limitation,
the fees of the arbitrators and any administration fees and reasonable
attorney's fees and expenses, shall be borne by the parties in such proportions
as the arbitrators shall decide that such expenses should, in equity, be
apportioned. This Section 14(h) shall not be applicable to matters arising out
of Executive's obligations pursuant to Section 9 hereof.
13
<PAGE>
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement
as of the day and year first above written.
Executive:
John C. Shapleigh
-------------------------------------------
John C. Shapleigh
Company:
Brooks Fiber Properties, Inc.
By: G. Jackson Tankersley, Jr.
--------------------------------------
G. Jackson Tankersley, Jr.
Chairman of the Compensation Committee
14
EXHIBIT 11
BROOKS FIBER PROPERTIES, INC.
Statement Regarding Computation of Earnings Per Share
Six Months Ended June 30,
1997 1996
------------ ------------
Shares outstanding - beginning of period ......... 31,082,139 1,162,800
Weighted average number of common and common
equivalent shares issued(1) ................... 3,107,884 20,760,533
------------ ------------
Weighted average number of common and common
equivalent shares outstanding - June 30, 1997.. 34,190,023 21,923,333
------------ ------------
Net loss ......................................... $(61,649,000) $(16,396,000)
============ ============
Pro forma loss per common and common equivalent
shares ........................................ $ (1.80) $ (0.75)
============ ============
- ----------
(1) Common and common equivalent shares issued consist of certain effects of
shares issued, stock options and warrants, and preferred stock for the six
months ended June 30, 1996. For the six months ended June 30, 1996, common
equivalent shares from convertible preferred stock (using the if converted
method) and stock options and warrants (using the treasury stock method)
have been included in the computation. Pursuant to the Securities and
Exchange Commission rules, convertible preferred stock which was
automatically converted at the date of issuance is included even though
inclusion may be anti-dilutive. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, shares issued and stock options
and warrants granted by the Company at prices below the public offering
price during the twelve-month period preceding the date of the initial
filing of the Registration Statement have been included in the calculation
of common stock equivalent shares, using the treasury stock method, as if
they were outstanding for the six month period ended June 30, 1996. For the
six months ended June 30, 1997, the weighted average number of shares was
based on common stock outstanding and does not include common stock
equivalents as their inclusion would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR BROOKS FIBER PROPERTIES, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 232,682,000
<SECURITIES> 124,665,000
<RECEIVABLES> 20,497,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 392,724,000
<PP&E> 531,522,000
<DEPRECIATION> 32,742,000
<TOTAL-ASSETS> 1,174,642,000
<CURRENT-LIABILITIES> 36,262,000
<BONDS> 781,517,000
25,200,000
0
<COMMON> 360,000
<OTHER-SE> 327,872,000
<TOTAL-LIABILITY-AND-EQUITY> 1,174,642,000
<SALES> 48,336,000
<TOTAL-REVENUES> 48,336,000
<CGS> 0
<TOTAL-COSTS> 84,313,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,844,000
<INCOME-PRETAX> (58,792,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (58,792,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,857,000)
<CHANGES> 0
<NET-INCOME> (61,649,000)
<EPS-PRIMARY> (1.80)
<EPS-DILUTED> (1.80)
</TABLE>
